[Inside Chodong] Shareholders Are Not Just Cash Providers

Controversy Over Hanwha Solutions’ Large-Scale Rights Offering
Sudden Announcement Two Days After Shareholders’ Meeting Triggers Strong Backlash from Minority Shareholders
A Setback for Efforts to Eliminate the "Korea Discount"

A recent rights offering by a company has sparked controversy. Not only have shareholders strongly protested, but even politicians have criticized the move, calling it an act of treating shareholders merely as financial backers. Financial authorities, concerned about possible damage to shareholder value, have begun a focused review of the rights offering.

The company in question is Hanwha Solutions, which decided on a rights offering worth 2.4 trillion won. Hanwha Solutions announced the 2.4 trillion won rights offering plan on March 26, just two days after its regular shareholders' meeting. No mention of the plan was made at the shareholders' meeting, and the sudden announcement of a large-scale rights offering so soon afterward caused an uproar among shareholders. The offering amounts to 42% of the existing shares, and more than 60% of the funds to be raised—1.5 trillion won—will be allocated for debt repayment. On the day the rights offering was announced, Hanwha Solutions’ share price plunged by more than 18%.

Minority shareholders are strongly protesting, submitting petitions to the Financial Supervisory Service and engaging in collective action, including rallying their shares to demand an extraordinary shareholders’ meeting.

The securities industry is equally critical. Brokerages have downgraded their investment ratings on Hanwha Solutions one after another, with some lowering their rating to “sell.” Politicians have also voiced criticism. Ahn Cheolsoo, a lawmaker from the People Power Party, denounced the move, saying, “It’s not Hanwha Solutions, it’s Hanwha Trouble,” and criticized the company for “trying to make up for management failure with shareholder losses and treating shareholders as mere sources of funds.”

This is not the first time the Hanwha Group has faced controversy over a rights offering. In March last year, Hanwha Aerospace announced a rights offering worth 3.6 trillion won, which also faced fierce opposition from shareholders. At the time, the Financial Supervisory Service rejected the company’s securities report twice, which ultimately reduced the size of the offering to 2.3 trillion won.

The reason Hanwha Group is facing more criticism over this situation is that while increasing executive compensation, they are also reaching out to shareholders to pay off debts. Kim Seungyeon, Chairman of Hanwha Group, received a total of 24,841,000,000 won from five affiliates last year, ranking first among business group leaders in terms of salary. From Hanwha Solutions alone, he received 5,041,000,000 won, an increase of 20% from the previous year. Hanwha Solutions recorded an operating loss of 353.3 billion won last year, marking its second consecutive year of losses.

In response to the strong backlash and public criticism, Hanwha Solutions has held investor briefings for individual shareholders, strengthened shareholder return policies, and announced that there will be no additional rights offerings at least until 2030. In addition, Hanwha Group Vice Chairman Kim Dongkwan, Hanwha Solutions management, and outside directors have started buying company shares in an effort to appease shareholders. However, it appears unlikely that these efforts will be enough to restore the trust that has already been lost.

Since last year, Korea’s stock market has been seen as changing. Policies aimed at eliminating the “Korea discount”—such as value-up initiatives and revisions to the Commercial Act—have been implemented, prompting companies to actively pursue shareholder value enhancement. As a result, the KOSPI index surpassed the 6,000 level for the first time in history, breaking free from the long-standing undervaluation that had weighed it down. It is now widely recognized that the efforts of both government and companies to enhance shareholder value also raise corporate value and, ultimately, the value of the Korean stock market itself. In this context, Hanwha Solutions’ decision to pursue a rights offering that undermines shareholder value is bound to be shunned by the market and investors. Companies that lose the trust of their shareholders should remember that they cannot expect a fair valuation in the market.

This content was produced with the assistance of AI translation services.