Published : Jan. 6, 2016 - 21:21
In a surprising move, Hanwha Techwin, the defense arm of Hanwha Group, is seeking to divest half of its 10 percent stake in the nation’s sole aircraft manufacturer Korea Aerospace Industries, swatting off market rumors of its possible acquisition of the government-controlled firm.
KAI`s T50 trainer aircraft (Yonhap)
Of the 5 percent stake offered for block trade, Hanhwa has already sold 4 percent or 3.9 million shares worth 279.3 billion won, the company said in a public announcement Wednesday.
The sales were executed with a discount of between 3 to 7 percent per share on the stock’s closing price of 77,100 won on Tuesday.
Hanwha’s unexpected share sale has fazed many as the defense affiliate of the nation’s 10th-largest conglomerate was reportedly gearing up to acquire KAI.
KAI’s stock price nosedived more than 10 percent on Wednesday to 69,300 won per share while Hanwha Techwin suffered a 3.57 percent drop to 33,800 won per share.
Last month, the defense equipment manufacturer sold all shares of its subsidiary Hanwha General Chemical worth 440 billion won. Market insiders then presumed that the company’s share sale was carried out to secure cash to take over KAI.
However, Hanwha said in a statement that the sale of KAI shares was to secure capital for expanding its major business ― engine component manufacturing.
“Instead of acquiring KAI, Hanwha appears to have chosen to expand its engine component business as it is expected to produce higher and faster return on investment,” said Kang Tae-hyun, an analyst at KTB Investment and Securities.
“Hanwha Techwin is also expected to strengthen its engine component business by seeking overseas M&As,” he said, adding that the firm may secure more than 1 trillion won in cash if it sells its entire stake in KAI.
The sale came less than a week after a four-year ban on selling KAI shares expired.
Hanwha and KAI’s other controlling shareholders ― Korea Development Bank, Hyundai Motor and DIP holdings ― had agreed not to sell shares until the end of 2015.
The state-run KDB holds a 26.8 percent stake in KAI, followed by Hyundai Motor and DIP holdings with 10 percent and 5 percent, respectively. After the block trade on Tuesday, Hanwha’s stake in KAI has reduced to 6 percent.
Market analysts and industry insiders expect other shareholders to follow suit and sell their stake in KAI.
DPI Holdings, an investment affiliate of Doosan Group, is also reportedly considering selling its 5 percent stake in KAI.
“Hanwha’s failure to sell the entire 5 percent stake it put on the block may send signals to the market that KAI’s stock price may have been overrated,” said an official.
Major stakeholders may put their own interests before KAI’s and delay the planned privatization of the government-controlled firm. Last November, KDB said it would sell off all its stakes in firms by 2019.
Along with Hanwha Techwin, Korean Air and Hyundai Heavy Industries are said to have expressed interest in acquiring KAI. But they are unlikely to make any bid now as both are facing financial difficulties.
Despite the stark prospects, market analysts have a positive outlook on KAI, citing the Korean government’s strong support for its projects.
“With the Korean government having expressed its willingness to proceed with the KF-X project, and with earnings improving at its commercial aircraft parts business, we believe that KAI’s estimated value will improve steadily going forward,” said John Wu, an analyst at NH Investment & Securities in his report published on Dec. 17.
By Cho Chung-un (christory@heraldcorp.com)