Hanwha Group has bought more than 15% of Korea Aerospace Industries (KAI) and will file for a business combination review with the Fair Trade Commission (FTC), signaling a strong intent to bid for the state-controlled planemaker if it is privatized. The pace of buying has outrun earlier expectations.
Hanwha Group (000880.KS) said on the 10th that it had secured a combined 15.89% of KAI, held through Hanwha Aerospace (9.90%), Hanwha Systems (272210.KS, 4.98%) and Hanwha Aerospace USA (1.01%). The move added another 3.45% just a month after Hanwha Systems said it would invest 500 billion won ($360 million) to buy more KAI shares.
The purchase cements Hanwha as KAI's second-largest shareholder, behind the Export-Import Bank of Korea, which holds 26.4%. As the second-largest shareholder, Hanwha is weighing how to take part in KAI's decision-making, including on business cooperation between the two companies to boost synergy and on support for expanding global exports.
To keep a stake of 15% or more, however, Hanwha needs FTC approval. Under the country's antitrust law, a business combination review is triggered not only by acquiring management control or becoming the top shareholder, but also when a major shareholder holds 15% or more, because such a holder can exert significant influence — blocking special resolutions at shareholder meetings by exercising veto rights, demanding board seats and taking part in key management decisions.
"The FTC will review the impact of Hanwha's expanded stake on the market's competitive structure," said Choi Kwang-sik, an analyst at Daol Investment & Securities. "What it will look at most closely is the restraint on competition from vertical integration."
If the FTC finds limited competition concerns, Hanwha can buy more shares on the open market. But if the regulator does not approve a holding of 15% or more, Hanwha would have to cut its KAI stake below 15%, potentially selling some shares back.
Hanwha supplies core components such as aircraft engines, radar, weapons and avionics, while KAI handles systems integration — the final assembly — of finished aircraft such as fighter jets and helicopters.
The industry expects that Hanwha's holding of 15% or more will not significantly restrain competition in the aerospace sector, but says acquiring KAI would require a comprehensive government decision. Attention is focused on how the Export-Import Bank of Korea will handle its KAI stake.
