800 Billion Won Loan Led by Shinhan Bank
Business Structure Reorganization Including Division and Sale of Business Units
Excessive Borrowing Burden Due to Affiliate Investments 'Financial Stability Down'
Hanwha, the holding company of Hanwha Group, raised funds through a loan securitization method. Amid growing uncertainties due to restructuring efforts such as business division, it is interpreted that the company opted for relatively lower interest rates compared to corporate bonds. The deterioration of the financial structure caused by consecutive investments also served as a background for utilizing alternative financing routes.
According to the investment banking (IB) industry on the 27th, Hanwha received a 3-year maturity loan worth 80 billion KRW from a special purpose company (SPC) established under the lead of Shinhan Bank. Shinhan Bank issued securitized bonds backed by the loan through the SPC to raise loan funds. Hanwha repays the principal and interest to the SPC, which in turn pays the principal and interest of the securitized bonds to investors.
Hanwha Group is currently restructuring its business around its holding company, Hanwha. In July this year, Hanwha decided to transfer its plant, wind power, and solar equipment businesses to its subsidiaries Hanwha Ocean and Hanwha Solutions, respectively. Additionally, it plans to spin off the Momentum division (tentatively named Hanwha Momentum) to establish a new company. In September this year, it also plans to spin off its subsidiary Hanwha Aerospace. Previously, in 2022, it split and sold its defense division while merging Hanwha Construction.
When restructuring the governance structure by dividing or selling business units, the holding sector's proportion increases. The proportion of dividend income or brand fee revenue from Hanwha Life, Hanwha Aerospace, Hanwha Solutions, and others will increase. However, the proportion of its own businesses such as global (trade) and construction still remains high. An IB industry official predicted, "There will be an effect of improving the financial structure by partially reducing borrowings during the division process."
Hanwha’s financial situation worsened as it increased investments in affiliates amid poor performance in its business divisions. As of last year, annual sales approached 7 trillion KRW, but the holding sector’s operating profit was 188.9 billion KRW, and the business sector’s operating profit was 72.9 billion KRW, showing a significant decline in profitability of its own businesses. This was due to losses in the Momentum division and sluggishness in the construction division despite the global division’s solid performance.
While profitability deteriorated, borrowings increased from about 2.11 trillion KRW in 2020 to about 4.49 trillion KRW at the end of the first quarter this year as investments increased. Net borrowings, subtracting cash equivalents from total borrowings, rose from 1.76 trillion KRW to 4.18 trillion KRW. Despite the sale of defense division shares, borrowing burdens increased significantly due to the merger with Hanwha Construction and equity investments in Hanwha Solutions, REC Silicon, Japan’s Hanwha Q CELLS, and Deokyang Energen.
In this process, the holding company’s double leverage (the ratio of investment assets in subsidiaries relative to equity capital) has continuously exceeded 130%. This means a significant portion of affiliate investments or equity acquisitions were financed through borrowings. An IB industry official explained, "Due to uncertainties regarding governance and financial conditions, funds were raised through loan securitization with Shinhan Bank, an existing transaction partner, rather than issuing public bonds."
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