Hanwha Aerospace Sells Defense Affiliates to Secure Cash
Planned Merger Hanwha Defense to Utilize Cash
Group Affiliates Participating in Capital Increase Have Large Cash Assets and Order Backlogs
[Asia Economy Reporter Park So-yeon] It has been confirmed that Hanwha Group plans to secure most of the 2 trillion KRW funds to be injected into Daewoo Shipbuilding & Marine Engineering's (DSME) rights offering from within the group. In addition to the cash equivalents held by affiliates participating in the rights offering, such as Hanwha Aerospace and Hanwha Systems, the group intends to utilize funds expected to flow in through restructuring of the governance structure and order backlogs.
According to investment banks (IB) and business circles on the 28th, Hanwha Aerospace, which will bear 1 trillion KRW of the acquisition funds for DSME, will secure more than 700 billion KRW by early next year through the sale of subsidiaries as part of the group’s business restructuring. In addition, cash and order funds held by Hanwha Defense, a subsidiary scheduled for absorption merger in November, can also be utilized.
Hanwha Aerospace had previously decided to sell subsidiaries such as Hanwha Power Systems, Hanwha Precision Machinery, and Hanwha Commercial Equipment as part of Hanwha Group’s business restructuring. In August, it transferred 100% of the shares of Hanwha Power Systems to its overseas affiliate Hanwha Power Systems Holdings Corp. The disposal amount was 210 billion KRW.
Additionally, Hanwha Aerospace decided to dispose of 100% of the shares of its subsidiary Hanwha Precision Machinery to Hanwha Corporation for 525 billion KRW. The transaction amount is 525 billion KRW, with the transaction date scheduled for January next year. In the same month, it plans to secure an additional 35 billion KRW by selling Hanwha Commercial Equipment (Shanghai) Co., Ltd. to Hanwha Corporation.
The recent surge in orders also provides strong financial backing for Hanwha Aerospace. Hanwha Aerospace recently signed a contract worth 219.2 billion KRW with the UK-based Vertical Aerospace Group Ltd. for the development and supply of electric actuators (EMA) for aircraft. These actuators control the driving devices that allow Urban Air Mobility (UAM) vehicles to hover and move in the air. Furthermore, through an aircraft engine supply contract with Korea Aerospace Industries, Hanwha Aerospace secured 419.3 billion KRW in funds.
Hanwha Defense, which Hanwha Aerospace plans to absorb in November, has net assets amounting to 740 billion KRW. Cash and accounts receivable exceed 400 billion KRW. The order amount secured through exports of the K9 self-propelled howitzer alone exceeds 3 trillion KRW. The industry expects additional orders worth about 7 trillion KRW in a short period. As of the end of the first half of this year, the order backlogs of Hanwha Aerospace and Hanwha Defense were 24.7989 trillion KRW and 7.1847 trillion KRW, respectively. Hanwha Aerospace’s cash equivalents (including cash) amount to approximately 2.1044 trillion KRW. Accounts receivable and other receivables total 1.1884 trillion KRW.
Hanwha Systems, which plans to participate in DSME’s rights offering with 500 billion KRW, also holds a large amount of cash. A Hanwha Systems official stated, "Funding will be secured through the company’s cash holdings." As of the end of the first half of this year, Hanwha Systems’ current assets amounted to 2.2 trillion KRW. Cash equivalents were 1.1868 trillion KRW, accounts receivable and other receivables were about 112 billion KRW, and other current assets were about 500 billion KRW. Retained earnings stood at approximately 161 billion KRW.
A Hanwha Group official said, "Although there are concerns that it may not be easy to immediately raise 2 trillion KRW at high interest rates, internal financing is fully possible due to funds coming in from subsidiary sales during the group’s business restructuring and future inflows from self-propelled howitzer exports."
Meanwhile, the Korea Development Bank decided to proceed with the sale by attracting Hanwha affiliates as new investors in DSME through a 'third-party allotment rights offering.' The sale price is around 2 trillion KRW. Hanwha Aerospace will participate with 1 trillion KRW, Hanwha Systems with 500 billion KRW, Hanwha Impact Partners with 400 billion KRW, and three subsidiaries under Hanwha Energy will each participate with 100 billion KRW in the rights offering.
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