South Korea’s biggest defence group, Hanwha Aerospace, is planning a $2.5bn share sale to fund overseas expansion as global security concerns rise. The company’s shares fell 13 per cent following the announcement, marking their biggest decline since last August. The move comes as Hanwha seeks to establish production bases in Europe, the Middle East, Australia, and the US to capitalize on increasing global demand for military equipment. The company’s stock had previously more than doubled in value this year amid expectations of strong orders from European countries, especially after former US President Donald Trump questioned NATO commitments.
Hanwha Aerospace will issue nearly six million shares at Won605,000 each, a 16 per cent discount from Thursday’s closing price. The offering is the largest in South Korea in more than three years. South Korea has become one of the world’s top ten defence exporters, particularly due to orders from Eastern Europe following Russia’s 2022 invasion of Ukraine. The country benefits from its ability to manufacture armaments at scale due to its ongoing confrontation with nuclear-armed North Korea, providing cost-effective options such as tanks, howitzers, and lower-end fighter jets.
The company plans to allocate Won1.6tn from the share sale to build overseas factories for ground defence arms and to acquire stakes in foreign defence firms. Hanwha’s order backlog has increased by more than 60 per cent over the past two years to reach Won32.4tn. As the leading global exporter of self-propelled howitzers, it aims to grow its sales to Won70tn and operating profit to Won10tn by 2035. Hanwha has already acquired a 9.9 per cent stake in Australian shipbuilder Austal after an unsuccessful $1bn takeover attempt last year. Additionally, its shipbuilding affiliate, Hanwha Ocean, is strengthening ties with the US Navy, having secured two maintenance, repair, and operations contracts last year.
The share sale has drawn criticism from investors concerned about dilution of stock value. South Korea’s Financial Supervisory Service is reviewing the plan after investor complaints, but its governor, Lee Bok-hyun, expressed a positive outlook on the offering. Analysts argue that Hanwha could have financed its expansion through its strong cash flow, as its operating profit nearly tripled to Won1.7tn last year on revenue growth of over 40 per cent to Won11.2tn. Analyst Choi Gwang-shik from Daol Investment & Securities projected this year’s operating profit at around Won3.5tn and suggested that the company could cover its capital expenditures over the next five years through projected profits rather than a large-scale share sale.
