Hanwha Solutions issues new shares to repay debt amid backlash from investors, politicians

Hanwha Solutions will issue new shares to raise 2.4 trillion won ($1.6 billion) to repay debt, drawing criticism from investors and politicians who feel that the company slapping a band-aid on a fundamental fiscal ailment.

Hanwha Group's building in Jung District, central Seoul, is seen in this file photo provided by the company [HANWHA GROUP]

Hanwha Solutions will issue new shares to raise 2.4 trillion won ($1.6 billion) to repay debt, drawing criticism from investors and politicians who feel that the company slapping a band-aid on a fundamental fiscal ailment. However, despite backlash from individual shareholders and political circles regarding the large-scale capital increase, the company's move seems to be focused on appeasing investors.

Hanwha Solutions will hold briefings for institutional investors on Thursday and retail investors on Friday to explain the plan and shareholder return policies, the company said Wednesday. The presentation comes as an apparent aim to pacify investors, since the company's stock price plunged following the stock issue announcement.

Last Thursday, the company decided to issue 72 million new common shares to raise 2.4 trillion won. Its stock price nose-dived 18.2 percent on the day of the announcement.

Hanwha Solutions will use 1.5 trillion won, or 62.6 percent of the proceeds, to repay borrowings, the company said.

Past cases show investor reactions have differed on share issuances depending on whether they found the purpose convincing. When Hanwha Solutions announced a 1.2 trillion won rights offering between 2020 and 2021, backlash was limited, as investors accepted its plan to invest in next-generation renewable energy value chains such as solar power and green hydrogen.

By contrast, the announcement of a surprise rights offering without undergoing the process of persuading shareholders this time was controversial. Although Hanwha Solutions held its regular general shareholder meeting on March 24, just two days prior to the announcement, it provided no explanation regarding the offering.

The Hanwha Solutions logo [HANWHA SOLUTIONS]

The fact that the company failed to communicate a crucial piece of information — raising new stocks amounting to 40 percent of its outstanding shares — spurred criticism of the company. Even politicians jumped in.

“Hanwha Solutions plans to use the funds raised to repay debt but failed to explain this at the shareholder meeting,” said People Power Party Rep. Ahn Cheol-soo. “Isn’t this treating shareholders simply as sources of funding?”

The securities industry suggests that this capital increase is merely the beginning of putting out the company's immediate fire, raising the possibility of further increases.

Although Hanwha Solutions already had room to increase its share count — with authorized shares at 300 million and about 170 million currently issued — it expanded the authorized share limit to 500 million at the shareholder meeting.

Hanwha Solutions' solar manufacturing plant located in Dalton, Georgia [HANWHA SOLUTIONS]

“The expected benefits from the capital increase are limited. Hanwha Solutions’ net borrowings stood at around 13 trillion won at the end of last year, and repaying 1.5 trillion won does not meaningfully reduce debt,” analyst Ahn Joo-won at DS Securities said.

“The company plans to invest 900 billion won in new technologies, but such investments are typically pursued when stable profits and cash flow are secured,” added Ahn. “Given its current financial structure, this should not be a priority.”

And yet, the outlook isn't so rosy for Hanwha Solutions, as the speed of recovery for the solar power industry seems far from rapid. In fact, the company failed to meet financial covenants tied to about 370 billion won in foreign-currency loans, its latest business report showed on Wednesday.

Hanwha Solutions classified a 215 million euro ($249 million) loan to its European subsidiary Q Energy Solutions — due in February 2028 — as a short-term liability because it failed to meet conditions. The loan required net debt to remain below five times EBITDA, but the company’s ratio stood at 29.1 times EBITDA at the end of last year. If credit risk increases, lenders may demand early repayment.

A solar power plant built by Hanwha Solutions in California is seen in this file photo. [HANWHA SOLUTIONS]

Among minority shareholders, there are also calls to switch the rights offering to a third-party allocation. Currently, the offering prioritizes existing shareholders, with any unsubscribed shares then offered to the public.

Of the new shares, 20 percent, or 14.4 million shares, will be allocated to the employee stock ownership association, and if the largest shareholder — Hanwha Corporation — subscribes to its full allotment of 26 million shares, roughly 30 million shares would remain for institutional and retail investors.

If the National Pension Service, which holds a 5.75 percent stake, chooses not to participate, the burden on retail investors could increase. A third-party allocation could allow affiliated companies within the Hanwha Group to absorb some of the shares.

“Hanwha Solutions has continued to invest in facilities to strengthen global competitiveness, but its financial condition has deteriorated because the solar and petrochemical sectors slowed,” a Hanwha Group official said. “If the capital increase is completed, improving financial stability and enabling 900 billion won in future technology investment, it will help secure global competitiveness and enhance shareholder value over the mid to long term.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom. BY NAM YOON-SEO, KO SUK-HYUN [lim.jeongwon@joongang.co.kr]