CP Issuance Balance 790 Billion Won... Record High
Increasing North American Solar Investments Despite Deficit
"Need to Control Investment Pace" Also Pointed Out
Hanwha Solutions is continuously increasing its borrowings as it expands overseas solar power investments amid poor earnings. This year, the financial situation is expected to worsen further due to the deteriorating profitability of the solar panel business, which recorded its highest performance last year. Some in the capital market advise that Hanwha Solutions needs to control the pace of its investments.
According to the bond market on the 4th, Hanwha Solutions newly issued corporate paper (CP) worth 150 billion KRW. The outstanding CP balance increased from the existing 640 billion KRW to 790 billion KRW. The balance, which was 270 billion KRW at the beginning of last year, has increased by about 520 billion KRW net over approximately one year and three months. On the 2nd, CP worth 70 billion KRW that matured was refinanced.
In addition to CP, Hanwha Solutions has continuously increased its borrowings. In January this year, it issued 150 billion KRW in public corporate bonds. The funds raised were used to repay corporate bonds and CP maturing in January. The CP balance, which temporarily decreased to the 400 billion KRW level due to CP repayments, recently increased to an all-time high due to successive issuances. In February, it also received a loan of 100 billion KRW from a special purpose company (SPC) organized by Woori Bank.
The successive borrowings are closely related to poor earnings. Hanwha Solutions posted a net loss last year due to poor performance in the chemical division. Sales decreased by 2.7% to 13.2887 trillion KRW, and operating profit fell by 37.4% to 604.5 billion KRW. Net loss was 155.3 billion KRW.
This year, the performance outlook for the renewable energy business, which supported the chemical division’s weakness and recorded the highest sales last year, has also worsened. This is largely due to the decline in selling prices caused by global oversupply, which is likely to deteriorate profitability. Hanwha Solutions stated in its February earnings conference call that "due to a decrease in module sales volume and price declines in the renewable energy business, a first-quarter loss is expected."
Despite poor earnings, investments continue to increase. It is expected to spend about 3 trillion KRW annually on facility investments until 2025 to expand the solar ingot, wafer, cell, and module sectors in the United States. In the chemical business, expansions of EVA (ethylene vinyl acetate copolymer) facilities and high value-added caustic soda are planned.
Additionally, it plans to continue equity investments in Hanwha FutureProof, a U.S. joint venture (JV) established jointly with Hanwha Aerospace. Recently, it purchased the solar equipment business of the Momentum division from its holding company, Hanwha Corporation, for 37 billion KRW.
With increased borrowings, total debt is expected to exceed 10 trillion KRW within the year. As of the end of last year, borrowings stood at 9.5554 trillion KRW. This represents an increase of more than 3 trillion KRW in two years from the early 6 trillion KRW level in 2021. Short-term borrowings and current portion of long-term debt that must be repaid or refinanced within one year also exceed 3.8 trillion KRW.
For this reason, there is advice to control the pace of investments. An investment banking industry official said, "Hanwha Solutions’ operating cash flow (OCF) fell below 1 trillion KRW last year, which is only about a quarter of the borrowings maturing within one year," adding, "It is necessary to manage financial stability by controlling the pace of investments."
A Hanwha Solutions official said, "A significant portion of the outstanding CP is a long-term purchase agreement product that commercial banks have agreed to buy, so the actual CP maturing within the year is about 50 billion KRW, which is not large," and added, "This is a level that can be sufficiently managed with the company’s deposits."
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