Hanwha Aerospace plans record $2.5 bn rights offering for plant expansion

Hanwha Aerospace Co., a leading South Korean defense company, said on Thursday it is raising 3.6 trillion won ($2.5 billion) in new capital through a rights offering to expand its global weapons and maritime production plants and purchase stakes in related facilities.

The defense affiliate of Korea’s chemicals-to-defense conglomerate Hanwha Group said in a regulatory filing that it will issue some 5.95 million common shares at 605,000 won per share.

The rights will be first issued to existing shareholders and any unsubscribed shares will be sold via a public offering, it said.

The subscription period for existing shareholders will run for two days from June 3, with the general public offering scheduled for June 9 and June 10.

The value of the planned rights offering is the largest capital raising in Hanwha Group’s history.

Through the capital increase, Hanwha Aerospace plans to expand its global production footprint in response to surging demand for military equipment driven by geopolitical tensions.

STRATEGIC EXPANSION

As geopolitical instability continues to drive demand for artillery systems, armored vehicles and missile defense systems, the company aims to secure a strategic advantage by establishing localized production capabilities in Europe, the Middle East, Australia and the US.

Hanwha Aerospace plans to allocate a significant portion of the funds raised from the rights offering – around 1.6 trillion won – to build overseas facilities for ground weapons production.

“We will enter negotiations with our partners in Europe and the Middle East for investment in production facilities. By doing so, we aim to enhance our competitiveness in securing orders,” said a Hanwha Group official.

The company’s flagship K9 self-propelled howitzers, Chunmoo multiple launch rocket systems (MLRS) and Redback armored vehicles are expected to be key products for localized manufacturing.

Some 900 billion won will be used to transform the company’s facilities in Korea into a research and development hub. This investment will focus on advancing technologies for its defense and aerospace systems, company officials said.

WARSHIP, MRO BUSINESSES

Hanwha Aerospace will inject 800 billion won to expand its warship business.

Earlier this week, Hanwha Group acquired a 9.9% stake in Austal Ltd., an Australian shipbuilder, for 183.3 million Australian dollars ($117 million) to cement its presence in the global shipbuilding and defense sectors.

Hanwha Aerospace and HAA No. 1 PTY Ltd., an Australian entity set up by Hanwha Systems Co. will jointly own the Austal stake.

Additional investments in shipyards and infrastructure are expected, including upgrades to Philadelphia’s Philly Shipyard Inc., which Hanwha Group acquired last June for $100 million from Aker Capital, an Oslo-based Norwegian energy investment company.

Hanwha officials said the conglomerate also intends to strengthen its position in securing contracts from the US Navy and allied navies for surface vessels and support ships.

To raise its chances of winning defense contracts, Hanwha Ocean Co., the group’s warship builder, has vowed to join forces with crosstown rival HD Hyundai Heavy Industries Co. to pursue a series of high-stakes international warship construction deals.

The conglomerate also plans to expand its presence in the warship maintenance, repair and overhaul (MRO) business.

UNMANNED AERIAL VEHICLES

Hanwha Aerospace said about 300 billion won will be invested in developing next-generation unmanned aerial vehicle (UAV) engines.

By focusing on indigenous UAV engine development, Hanwha aims to reduce reliance on foreign technology and enhance its competitiveness in the rapidly growing defense drone market.

“This strategic investment will propel Hanwha Aerospace into a global leader across defense, maritime and aerospace sectors,” said Hanwha Aerospace Chief Executive Son Jae-il.

Hanwha Aerospace officials said the rights offering will help the company achieve an annual operating profit of 10 trillion won on sales of 70 trillion won by 2035.

Hanwha Aerospace, the aircraft engine-making unit of Hanwha Group, absorbed Hanwha Defense Co. in 2022 to create synergy and cut costs in the defense and aerospace businesses.

Write to Woo-Sub Kim at duter@hankyung.com

In-Soo Nam edited this article.