The Financial Supervisory Service has released specific grounds for rejecting the securities registration statement of Hanwha Aerospace, which announced the largest capital increase in history.
On the 1st, Han Yong-il, deputy head of the capital markets division at the FSS, held a briefing on current issues at the main office in Yeouido, Seoul, and noted, “Hanwha Aerospace needs to clearly state in the securities registration statement whether it has sufficiently reviewed the reasons for choosing a capital increase among various funding options, the timing of the capital increase, and the purpose of fund usage to inform investors.”
Deputy Head Han also mentioned that the background of restructuring the equity structure of subsidiaries before and after the capital increase, its correlation with the capital increase, and the impact of the restructuring on the company should be rewritten in the securities registration statement. For the company to proceed with the capital increase, it must include the plan in the securities registration statement and submit it to the financial authorities for review. If it receives a rejection from the FSS, it can correct and resubmit it. However, the capital increase cannot proceed until it passes the review.
Deputy Head Han emphasized that the FSS is not blocking the capital increase unconditionally, which is a misunderstanding in the market. He said, “There is a positive aspect that the capital increase is one of the important funding methods to secure the company's long-term growth momentum.” He added, “However, it is necessary to balance both aspects as it is perceived as a short-term negative due to shareholder value dilution.”
He also stated that there is no definitive answer in the securities registration statement. Investment risk factors can vary depending on the industry or company. Deputy Head Han remarked, “If there are circumstances related to the capital increase payment for Hanwha Aerospace due to the movement or changes in equity, investors will naturally be curious about (the background),” and added, “If the investment risk content in the revised securities registration statement is insufficient, they can request further corrections.”
On the 20th of last month, Hanwha Aerospace announced that it would proceed with a capital increase to invest in overseas defense (1.6 trillion won), domestic defense (900 billion won), overseas shipbuilding (800 billion won), and engines for drones (300 billion won). However, on the 27th of the same month, the FSS asked them to rewrite the securities registration statement, citing a lack of necessary information for investors' rational judgment, revealing specific reasons only on that day.
As soon as Hanwha Aerospace announced the capital increase, criticisms from shareholders poured in. The basis for this was that the company has sufficient funds. As of the end of last year, Hanwha Aerospace's current assets amounted to 23 trillion won, and its net profit was 1.038 trillion won. With the current business booming, there are predictions in the securities industry that Hanwha Aerospace will generate an operating income before tax, interest, depreciation, and amortization (EBITDA) of 5 trillion won over the next two years.
Just before the capital increase, Hanwha Aerospace also acquired 7.3% of Hanwha Ocean's equity for 1.3 trillion won. This raised concerns about whether the company's funds would be used to manage subsidiary equity and invest with shareholders' money. Additionally, it sparked outcry when Kim Seung-yeon, chairman of Hanwha Group, gifted 11.32% of his equity (22.65%) to his son, Kim Dong-kwan, vice chairman (4.86%), Kim Dong-won, president (3.23%), and Kim Dong-seon, senior vice president (3.23%).
If Hanwha Aerospace does not resubmit the securities registration statement within three months of receiving the correction request, the capital increase will be canceled, but this possibility is deemed slim. There is a strong will to complete the capital increase. A representative from Hanwha Aerospace stated, “We will respond as sincerely as possible to the FSS's requests.”