Corporations are announcing capital increases in the trillions of won to secure funding. They are saying that the money earned from operations is insufficient, and the method to raise additional funds is through the issuance of new shares, which immediately cools investment sentiment.
The shockwave was significant, as the government and political circles all took notice when Hanwha Aerospace announced a capital increase of 3.6 trillion won on March 3. The capital increases of 1.7 trillion won by Samsung SDI and 1.1 trillion won by POSCO FUTURE M are also under the focused examination of the Financial Supervisory Service.
The capital increases in the trillions of won announced by large corporations initially seem to be a negative factor for stock prices. Upon hearing the news of a capital increase, investors first think, "How bad must their financial situation be..."
The issuance of new shares inevitably dilutes the value of existing shareholders' equity. This is undoubtedly a factor that contributes to stock price declines. It also exacerbates revenue indicators. If net income remains the same but the number of shares increases due to the capital increase, net income per share will fall.
Moreover, the newly issued shares will be priced lower than current prices. To increase subscriptions to the newly issued shares, corporations have no other choice.
According to Shinhan Investment Corp, among 302 listed companies that conducted capital increases through shareholder allocation and public offerings over the past decade since 2015, 65% experienced a drop in stock prices on the announcement day, and stock prices remained lower than before even after 280 days post-announcement.
However, capital increases can also provide new investment opportunities for long-term investors. Consider this: is it right to lump all capital increases together and view them as "poison" for stock prices?
Especially in the case of third-party allotment capital increases, the story changes significantly. It can be interpreted as a signal that certain investors recognize the growth value of the corporation, and the speed of capital acquisition is faster than other methods, with relatively lower stock price discount rates.
Even if it's not strictly a third-party allotment, if the purpose of the capital increase focuses on investments for future growth, there is no need to view it negatively.
Lee Jae-won, a researcher at Shinhan Investment Corp, analyzed that "looking at past cases, the conditions for a so-called 'successful capital increase' where stock prices actually rose after the capital increase announcement were not merely improving financial structure, but rather aimed at expanding production capacity or securing research and development (R&D) expenses for future investments or cases where the parent company participates in the capital increase."
Among the corporations that announced capital increases in the past, relevant cases include POSCO FUTURE M in 2020 and Hanwha System in 2021. Recently announced large-scale capital increases by Hanwha Aerospace, Samsung SDI, and POSCO FUTURE M also meet these conditions.
In the case of Samsung SDI, funding will be secured for establishing overseas plants and domestic all-solid-state production lines, with participation from Samsung Electronics. Hanwha Aerospace plans to use the funds raised for defense technology development and expansion of overseas production facilities, with Hanwha joining in. POSCO FUTURE M's capital increase, aimed at financing the expansion of domestic and overseas plants, will have POSCO Holdings participating.