[Click e-Stock] "Daewoo Shipbuilding Finds Owner, But Concerns Over Share Dilution and Overhang Remain"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment evaluated on the 27th that Daewoo Shipbuilding & Marine Engineering, which will welcome Hanwha Group as its new owner, is expected to stabilize management, but concerns about share dilution and overhang may pose burdens.

On the previous day, Hanwha Group and the Korea Development Bank signed a conditional MOU including a paid-in capital increase plan for Daewoo Shipbuilding & Marine Engineering. The paid-in capital increase by third-party allotment amounts to approximately 2 trillion KRW. Through this, Hanwha Group will secure a 49.3% stake and management rights. Companies participating in the capital increase include Hanwha Aerospace (1 trillion KRW), Hanwha Systems (500 billion KRW), and four Hanwha Group affiliates (500 billion KRW). The acquisition price is 19,150 KRW, a 10% discount from the reference stock price.

This sale is a comprehensive sale including the shipbuilding division, not a separated sale of the defense sector. Yuje-seon, a researcher at Hana Financial Investment, said, “Issues related to corporate merger review will be limited,” adding, “Considering that Hanwha Group is focusing on energy and defense sectors, this is generally regarded as an effort to expand the value chain in LNG, hydrogen, offshore wind power, and so on.”

However, the large scale of the paid-in capital increase may be somewhat uncomfortable for existing shareholders. Since the Korea Development Bank will still hold a 29.2% stake in Daewoo Shipbuilding & Marine Engineering after the capital increase is completed, there is a possibility of overhang risk related to the recovery of public funds.

Researcher Yuje-seon said, “Expectations for improved financial stability due to large-scale capital expansion and opportunities for profitability improvement under private major shareholder management are positive,” maintaining a buy investment opinion and a target price of 33,000 KRW.