Hanwha Aerospace, the defense arm of South Korea’s Hanwha Group, said on April 8 it would reduce its planned rights offering to 2.3 trillion won ($1.7 billion) from the originally announced 3.6 trillion won, amid mounting scrutiny over whether the funds would support the group’s succession plans.
The company said the move was aimed at addressing shareholder concerns and easing speculation that the capital raise would indirectly benefit the founding family.
Under the revised plan, Hanwha Aerospace will receive 1.3 trillion won in cash from Hanwha Energy, a company wholly owned by the three sons of Hanwha Group Chairman Kim Seung-youn. The funds will be provided through a third-party allocation, with Hanwha Energy acquiring about a 4% stake in Hanwha Aerospace.
The 1.3 trillion won had previously flowed out of Hanwha Aerospace in March, when it paid Hanwha Energy for a 7.3% stake in shipbuilder Hanwha Ocean. The revised transaction effectively returns the funds within a month.
Analysts say the move is aimed at defusing allegations that the funds, once parked under Hanwha Energy, could be used to finance the succession of Chairman Kim’s sons. Critics had raised concerns of a backdoor transfer of wealth within the group.
The controversy erupted after Hanwha Aerospace unveiled its 3.6 trillion won rights issue just a week after the Hanwha Ocean deal, prompting investor concerns that the company had depleted its reserves for a non-urgent acquisition, only to refill them by diluting shareholder value.
That Hanwha Energy is entirely owned by Kim’s sons further fueled criticism that the proceeds could ultimately benefit the family, whether through dividends or other means.
In response, Chairman Kim announced on March 31 that he would gift an 11.32% stake in Hanwha Corp — the group’s de facto holding company — to his sons, effectively finalizing succession. The three are expected to pay about 220 billion won in gift taxes, securing a combined stake of nearly 50%.
Hanwha Group said Hanwha Energy has no plans to issue dividends to fund the tax payments.
Still, political backlash continued. Lee Jae-myung, leader of the opposition Democratic Party, criticized the group on social media, suggesting the rights issue could lower Hanwha Aerospace’s share price and reduce inheritance tax liabilities. He called for revisions to South Korea’s Commercial Act.
The revised capital plan, which returns the 1.3 trillion won to Hanwha Aerospace, is widely seen as an attempt to quell such concerns.
“Allegations of favoritism won’t go away as long as a company wholly owned by the sons holds this much cash,” an industry official said.
The plan requires board approvals at each affiliate and a review by the Financial Supervisory Service, and is expected to be implemented later this month.
At a press briefing on April 8, Hanwha Aerospace apologized for the confusion surrounding the original announcement, saying it had “fallen short in many respects.”
Under the updated terms, existing shareholders will be offered shares at a 15% discount to market value, while Hanwha Energy will purchase shares at full price. A Hanwha official said the pricing was intended to minimize dilution for general shareholders.
