Hanwha faces controversy with each rights issue... Needs to restore trust befitting 5th largest conglomerate

Hanwha, a conglomerate that ranks fifth in South Korea's business circles, is once again embroiled in controversy surrounding its large-scale rights issue. Financial regulators have repeatedly halted the process, demanding detailed explanations regarding the structure and intended use of the funds. These recurring issues have fueled accusations of "tricky succession" tactics and criticisms of shifting the burden of management failures onto shareholders. The prevailing sentiment is that Hanwha needs to rebuild market trust commensurate with its standing, rather than relying on stock price fluctuations to resolve its financial challenges.

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The FSS cited the statement's failure to meet formal requirements and the potential for investors to make irrational decisions or be significantly misled due to material misstatements, omissions, or ambiguities.

The Financial Supervisory Service (FSS) issued a second correction request for Hanwha Solutions' amended securities registration statement regarding its rights issue, initially filed on the 17th. The FSS cited the statement's failure to meet formal requirements and the potential for investors to make irrational decisions or be significantly misled due to material misstatements, omissions, or ambiguities. Hanwha Solutions had announced a 2.4 trillion won rights issue, a significant expansion of its existing shares, just two days after its regular shareholders' meeting on the 26th of last month. The plan to allocate 1.4899 trillion won, or 60% of the raised capital, to debt repayment instead of future investments sparked strong backlash from ordinary shareholders, who viewed it as an attempt to offload management failures onto them, leading to a sharp decline in the company's stock price.

Adding to the controversy, Hanwha Solutions executives' remarks about "prior communication with the FSS" surfaced. The FSS had initially requested corrections on the 9th, citing insufficient explanations regarding the use and necessity of funds. Hanwha Solutions responded by resubmitting a revised plan for a 1.8 trillion won rights issue, reducing the debt repayment portion by 600 billion won. Chairman Kim Seung-youn announced he would forgo his salary from Hanwha Solutions as a measure of responsible management. However, the FSS found this insufficient and again requested further corrections.

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Hanwha Solutions announced a 2.4 trillion won rights issue, a significant expansion of its existing shares, just two days after its regular shareholders' meeting on the 26th of last month. The plan to allocate 1.4899 trillion won, or 60% of the raised capital, to debt repayment instead of future investments sparked strong backlash from ordinary shareholders, who viewed it as an attempt to offload management failures onto them, leading to a sharp decline in the company's stock price.

While the specific reasons for the FSS's detailed correction requests remain confidential, speculation suggests that Hanwha's recent large-scale rights issue plans may be perceived as favoring management. This could be in conflict with the recent strengthening of shareholder protections and capital market normalization trends, particularly concerning the expanded duty of loyalty for directors. This situation is reminiscent of the FSS's stringent review of Hanwha Aerospace's rights issue last year, which also involved two correction requests. At that time, Hanwha Aerospace planned a 3.6 trillion won rights issue to secure funds for defense industry investments. Shortly before this announcement, Hanwha Energy, wholly owned by Chairman Kim Seung-youn's three sons (Dong-kwan, Dong-won, and Dong-sun), purchased Hanwha Ocean shares for 1.3 trillion won. This move fueled accusations that it was a calculated maneuver to secure funds for management succession. The controversy intensified when Chairman Kim Seung-youn promptly transferred half of his stake in the holding company, Hanhwa Corp., to his three sons on the same day the rights issue was announced, causing Hanwha's stock price to plummet. The issue even drew commentary from then-Democratic Party leader Lee Jae-myung, who is now the President, who shared shareholder criticisms on Facebook, stating that "the capital market is treated like an ATM." He also pointed to the need for amendments to the Commercial Act, noting that such practices, while rare in Western capital markets, are not uncommon in Korea.

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the capital market is treated like an ATM

In response to the FSS's second correction request, Hanwha Solutions issued a statement acknowledging the seriousness of the situation. The company pledged to "deeply reflect on the criticisms and opinions raised by shareholders and the media regarding the rights issue" and to "diligently prepare a registration statement that fulfills the correction requests."

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We will deeply reflect on the criticisms and opinions raised by shareholders and the media regarding the rights issue and diligently prepare a registration statement that fulfills the correction requests.