Hanwha Aerospace shocks market with abrupt stock sale

Korean defense giant Hanwha Aerospace's abrupt decision to raise 3.6 trillion won ($2.5 billion) through a stock sale sent shock waves through the local financial market Friday, sparking criticism over its funding strategy for future investments, Azernews reports, citing Korea JoongAng Daily.

In a regulatory filing the previous day, the company said the stock sale was part of its broader global investment plans in future growth sectors.

The proceeds will be used to acquire strategic production bases in Europe, the Middle East, Australia and the United States as it expects more opportunities amid a rearmament push in Europe as well as efforts by the United States to bolster its shipbuilding industry, it said.

Despite the company's growth prospects, investors reacted negatively to the announcement, with shares tumbling 13.2 percent to close at 628,000 won, falling by the daily limit of 15 percent in midday trading.

At the same time, shipbuilding affiliate Hanwha Ocean declined 2.27 percent, and defense electronics unit Hanwha Systems fell 6.19 percent.

Experts said Hanwha Aerospace's investment direction is promising but criticized its choice of capital increase despite the company's strong financial position.

"Localization and mergers and acquisitions are key strategies for a defense firm to expand its business," said Byun Yong-jin, an analyst at iM Securities. "This investment decision is a clear move to secure potential orders in Saudi Arabia and Europe."

Hanwha Aerospace posted a record 1.7 trillion won in operating profit last year, driven by the recent boom in the global defense industry. Exports of its flagship K9 howitzer and Chunmoo rocket launcher to Poland contributed to the robust performance.

The company expects operating profit to rise further to 2.8 trillion won in 2025 and 3.5 trillion won in 2026, bolstered by new contracts with Romania and Middle Eastern countries.

To accelerate growth, the company plans to use 1.6 trillion won from the stock offering for overseas production facilities and arms industry partnerships.

It also seeks to inject 900 billion won from the stock sale to invest in a smart factory and other production facilities, and 800 billion won to acquire more overseas shipbuilding facilities.

In line with its expansionary move, the company acquired a stake in Australian shipbuilder Austal earlier this week, while Hanwha Group also acquired U.S. shipbuilder Philly Shipyard last year.

Despite Hanwha Aerospace's strong performance, analysts pointed out that the massive capital increase could have a greater-than-expected negative impact on investors.

The company's recent earnings growth and strong future outlook have pushed up its stock price by more than 121 percent since the beginning of the year.

"Few might have expected this decision, given Hanwha Aerospace's improving earnings," a report from Samsung Securities said. "This will have a negative impact on the investor sentiment."

Capital increases are often seen as unfavorable to investors as they dilute the share of existing shareholders, potentially leading to losses and stock price declines.