Due to Takeover of Hanwha Ocean
Hanwha Aerospace will borrow 400 billion won (US$304 million) and pay off all of its debts with the funds. Analysts say that the company will feel the burden of investing 1.3 trillion won to acquire Hanwha Ocean in 2023 more acutely.
Hanwha Aerospace announced on Jan. 5 that it has finalized the issuance of corporate bonds totaling 400 billion won. The company had initially decided to issue 200 billion won, but increased the amount by 200 billion won.
Hanwha Aerospace’s conversion of 400 billion won borrowing is the first of its kind. Three years ago, Hanwha Aerospace also issued 400 billion won, but 260 billion won of it was used as operating funds such as acquiring the securities of other companies. The company’s debt-to-equity ratio also increased, rising from 180% in 2018 to 309% in the third quarter of last year.
Hanwha Aerospace’s large-scale investment last year is said to have increased its debt dependence. The company decided to invest US$500 million in its new U.S. subsidiary, Hanwha Futureproof, and injected US$160 million.
The company’s cumulative operating income and cash at the end of the third quarter of last year were 415.3 billion won and 1.9832 trillion won, respectively. Injecting more than 1.3 trillion won into the capital increase of Hanwha Ocean is a huge burden for Hanwha Aerospace.
Hanwha Aerospace can afford it. “The majority of our backlog is export and we will begin to deliver the Redback beginning in 2026, so our cash flow will be on the rise from 2024 to 2027,” said an official of Hanwha Aerospace.
The key is Hanwha Ocean’s management. As the largest shareholder of Hanwha Ocean, Hanwha Aerospace is bound to share its risks. The company’s debt-to-equity ratio, which once reached 1,800%, fell to 396% in the third quarter of 2023, but it is still high. The company’s cash flow also dropped by 726 billion won over the same period.
As a result, Hanwha Ocean’s conservative management stance is expected to intensify. The shipbuilder is the only one of the three major Korean shipbuilders not to disclose its order intake target for this year. Last year, the company’s strategy focus on taking orders for high vessel prices resulted in only US$3 billion in new orders, meeting only 43% of its order intake target. “We are reorganizing our business strategy to focus on offshore wind power and ships rather than low-priced merchant ship orders,” said a Korean shipbuilder industry insider.