Debt-ridden Hanwha Ocean may turn the tide by raising $1.9 billion

Industry

Published: 22 Aug. 2023, 18:33

Debt-ridden Hanwha Ocean may turn the tide by raising $1.9 billion

A fresh nameplate reading "Hanwha Ocean" is visible on a large crane at the company's shipyard in Geoje, South Gyeongsang, on Tuesday, following the rebranding of Korean shipbuilder Daewoo Shipbuilding & Marine Engineering as Hanwha Ocean in May. [YONHAP]

Hanwha Ocean is considering raising 2.5 trillion won ($1.9 billion) by issuing new shares to potentially facilitate investments and address its debt ratio.

"We're considering various fundraising options for new business ventures, including a capital increase plan," Hanwha Ocean said in a regulatory filing to DART, the Financial Supervisory Service’s electronic disclosure board, on Tuesday. "However, no definite decisions have been made yet."

The Korean shipbuilder also indicated that it will disclose the information once specific details are finalized.

Hanwha Ocean reportedly selected five Korean and international securities firms as lead managers for raising 2.5 trillion won, as reported by local media. This capital increase, if implemented, would represent roughly 30 percent of Hanwha Ocean's total market value.

The decision comes only a few months after Hanwha Group took over the debt-ridden Daewoo Shipbuilding & Marine Engineering (DSME) in May. Five affiliates of Hanwha, including Hanwha Aerospace and Hanwha Systems, participated in a 2 trillion won rights offering and became the controlling shareholder with a 49.3 percent stake in the shipbuilder.

Insiders suggest that the funds derived from this capital increase are likely to be used for facility investments. More detailed plans regarding these investments are expected to be announced in September.

The potential capital injection is also anticipated to play a role in improving Hanwha Ocean's debt ratio, which stood at 485 percent at the end of June. This move could help address and potentially reduce the ratio, improving the company's financial health.

Media reports on the plan triggered a decline in Hanwha Ocean's stock price on Tuesday due to concerns over the diluted value of shares when the capital raising takes place.

The stock closed at 35,850 won, marking a 5.03 percent drop from the previous trading session. It reached its lowest point during trading at 34,500 won, which is an 8.61 percent decrease.

Paid-in capital increases often lead to a decrease in existing share values, impacting stock prices. This situation can also result in reduced voting rights and dividends.

Other Hanwha affiliates also saw declines in their stock prices on the same day, possibly due to concerns about potential fund outflows from Hanwha entities, prompting some to sell shares.

The stock of Hanwha Aerospace, for instance, once dropped by 4.68 percent but managed to recover to close at the same price as the previous day. Similarly, Hanwha Systems experienced a 3.24 percent drop during trading but later narrowed its losses to a final decrease of 1.58 percent by the end of the trading session Tuesday.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]