‘Governance Restructuring and Investment Expansion’ Hanwha Group's Record-High Fundraising This Year

3.5 Trillion KRW Corporate Bonds Issued by Public and Private Funds This Year
Led by Hanwha Solutions, Hanwha Aerospace, Hanwha Energy
Hanwha Ocean Acquisition, Continued Investment in North American Solar and New Businesses
Borrowing Expansion Policy Maintained Due to Delayed Earnings Improvement

Hanwha Group has issued the largest-ever corporate bonds this year. This increase in external financing is due to rising financial burdens from governance restructuring and investments. In particular, Hanwha Solutions has seen a rapid increase in net borrowings amid deteriorating performance while executing trillions of won in North American solar investments, leading to a swift rise in financial burdens.

Hanwha Solutions Carterville Plant Construction Site, Georgia, USA
[Image Source=Yonhap News]

According to the investment banking (IB) industry on the 16th, Hanwha Solutions issued 700 billion won worth of private hybrid bonds, pushing the total corporate bond issuance by Hanwha Group this year to 3.5 trillion won. This is the largest annual corporate bond issuance in Hanwha Group's history. It ranks as the fourth-largest corporate bond issuer among major conglomerates, following SK Group (7.7 trillion won), LG Group (4.3 trillion won), and Lotte Group (3.6 trillion won).

Over the past five years, Hanwha Group has issued an average of around 2 trillion won in corporate bonds annually. The previous record was 2.9 trillion won issued in 2022. This year, the record was broken in less than eight months. Among its affiliates, Hanwha Solutions leads with 1.05 trillion won, followed by Hanwha Aerospace (700 billion won), Hanwha Life (500 billion won), Hanwha Energy (350 billion won), Hanwha Investment & Securities (300 billion won), Hanwha (250 billion won), and Hanwha Systems (250 billion won).

Notably, Hanwha Solutions' borrowings have surged sharply. Net borrowings (borrowings minus cash equivalents), which were below 5 trillion won at the end of 2022, exceeded 10 trillion won in the second quarter of this year. With declining cash flow generation in the solar materials and petrochemical sectors, and large-scale capital injections into North American solar investments and affiliate equity acquisitions, financial burdens have significantly increased. The burden is further intensified as internally available funds shrink due to worsening performance. Operating cash flow (OCF), which had exceeded 1.6 trillion won annually, turned negative cumulatively in the second quarter of this year.

Debt maturities are approaching rapidly. Short-term borrowings (borrowings with maturities under one year) and current portions of long-term debt (long-term borrowings maturing within one year), which were managed around 3 trillion won until 2022, exceeded 6 trillion won in the second quarter of this year. A corporate bond market insider commented, "With reduced cash flow, the company must continue raising funds to meet the 6 trillion won debt maturities due within one year."

Funds raised recently through issuing hybrid bonds are reportedly planned mainly for debt repayment. Issuing bonds with a call option (early redemption right) and an effective maturity of three years to repay short-term borrowings can somewhat alleviate the burden of debt maturities. Hybrid bonds are recognized as equity in accounting, which helps reduce the debt ratio. The 350 billion won raised through corporate bonds in the first half of this year was also used to repay short-term borrowings and commercial paper (CP) borrowed from KDB Industrial Bank.

Hanwha Aerospace's K9 Self-Propelled Howitzer and K10 Ammunition Resupply Vehicle (Source: Hanwha Aerospace)

Hanwha Aerospace's borrowing burden increased after investing about 2 trillion won in two rounds to acquire Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering). Net borrowings, which were around 310 billion won at the end of 2022, approached 3 trillion won in the first half of this year, a tenfold increase. The company continues to invest in overseas projects in the energy storage system (ESS) sector, satellite communications, air mobility, and digital platforms. Increased new orders in the defense industry have also raised operating fund demands.

Hanwha Energy's borrowings have increased due to strengthening group control and strategic business investments. Since 2022, it has invested in Korea Zinc (470 billion won), Hanwha Power Systems (210 billion won), Hanwha Ocean (500 billion won), and Hanwha Engine (230 billion won). Recently, it also took out large loans through securitization while publicly acquiring shares of Hanwha, the group's holding company, to expand group control. Hanwha Energy is wholly owned by the three third-generation heirs of Hanwha Group, including Vice Chairman Kim Dong-kwan (50% stake), and is at the center of the group's governance restructuring.

An IB industry official said, "Major Hanwha Group affiliates are experiencing increased funding needs due to governance restructuring and new business investments," adding, "It will take some time before cash flow improves enough to reduce borrowings as North American investments and new businesses achieve visible results." The official also predicted, "Debt maturities, which have increased since investments accelerated in 2022, are coming due one after another, so Hanwha Group's external financing is expected to continue rising for some time."

This content was produced with the assistance of AI translation services.