Hanwha Corp. (000880.KS) is eyeing its stake in Korea Zinc (010130.KS) as a key asset to liquidate as it prepares to invest at least 700 billion won ($490 million) in a massive rights offering by Hanwha Solutions (009830.KS) aimed at improving the subsidiary's financial health.
According to industry sources on Monday, Hanwha Corp., the largest shareholder of Hanwha Solutions, plans to take up more than 100% of its allotted shares in the rights offering. In that case, Hanwha Corp. would be allocated a minimum of 21.12 million new shares, based on the new share allotment ratio of approximately 0.33 shares per existing share, totaling around 700 billion won.
Hanwha Corp. is also reportedly considering an "oversubscription" of an additional 20% of its allocated shares. Oversubscription is a system that allows existing shareholders to receive additional unsubscribed shares remaining after the initial subscription period. If Hanwha Corp. takes up 120% of its allocation, the total investment is estimated at approximately 840 billion won ($590 million).
In particular, Hanwha Corp. has decided to pursue asset liquidation to secure the funds needed for participating in the rights offering. The decision aims to minimize borrowing, given the controversy over shareholder value dilution and questions about the appropriateness of the large-scale capital raise undertaken by Hanwha Solutions to improve its deteriorating financial structure. Hanwha Corp. held only 130.3 billion won in cash and cash equivalents on its separate financial statements as of the end of last year, making it difficult to cover the subscription cost without additional fundraising.
Industry observers are paying close attention to whether Hanwha Corp. will sell its 1.28% stake (238,385 shares) in Korea Zinc. In 2022, Hanwha Corp. exchanged 7.25% of its own treasury shares for 1.2% of Korea Zinc's treasury shares as part of a strategic partnership for business collaboration.
Hanwha Corp.'s Korea Zinc stake is worth approximately 353.7 billion won based on the closing price of 1,484,000 won on the 3rd, well above the book value of 313.7 billion won. This amount could cover roughly half the capital needed for participation in the Hanwha Solutions rights offering. Notably, some observers argue that Hanwha Corp.'s rationale for continuing to hold the Korea Zinc stake has weakened, given that Korea Zinc — currently embroiled in a management control dispute with Young Poong and MBK Partners — disposed of its entire Hanwha Corp. stake first in 2024.
Beyond Hanwha Corp., the broader Hanwha Group holds a combined 7.7% stake in Korea Zinc through affiliates including Hanwha Impact (1.8%) and Hanwha Power Systems (4.8%). Hanwha Group has reportedly been sounding out multiple foreign asset management firms regarding the sale of its Korea Zinc holdings. However, a Hanwha official said, "We have never reviewed selling the Korea Zinc stake."
The specific scale of Hanwha Corp.'s participation in the rights offering and its fundraising methods will be determined through a board resolution. Assets that Hanwha Corp. could potentially liquidate include real estate such as land and buildings, as well as stakes in other companies. As of the end of last year, it held 350.5 billion won in investment properties, 408 billion won in land, and 185.7 billion won in buildings, while its total equity investments in other companies amounted to 5.9553 trillion won.
