Shares of South Korea’s largest defence group plunged 13 per cent on Friday after it announced a Won3.6tn ($2.5bn) offering to fund overseas expansion, as the sector benefits from the Trump administration’s shake-up of global security priorities.
Hanwha Aerospace shares had more than doubled in value so far this year on expectations of robust orders from European countries after President Donald Trump questioned Nato commitments.
But they suffered their biggest decline since last August on Friday after the company said it would issue almost 6mn shares at Won605,000 apiece, 16 per cent below the stock’s close on Thursday. The share sale is South Korea’s largest in more than three years.
The artillery maker is capitalising on a rally in Asian defence stocks, which have soared to record highs this year as Europe steps up rearmament.
South Korea has emerged as one of the world’s 10 biggest defence exporters on the bank of strong orders, especially from eastern European countries, since Russia’s full-scale invasion of Ukraine in 2022.
Hanwha and tank producer Hyundai Rotem have become the top performers in the regional MSCI Asia Pacific index as Trump’s shifting security priorities fuel expectations of higher military spending by western governments and growing investor interest in global defence companies.
South Korea produces armaments at a larger scale than many of its western competitors because of its confrontation with nuclear-armed North Korea, offering value for money on weapons such as tanks, howitzers and lower-end fighter jets.
Hanwha said it planned to “secure strategic overseas production bases” in Europe, the Middle East, Australia and the US to meet growing demand. It will spend Won1.6tn raised from the share sale on building factories overseas for ground defence arms and on acquiring stakes in foreign partners.
Among global arms producers, Hanwha has seen one of the biggest rises in new orders, with its backlog jumping more than 60 per cent to Won32.4tn over the past two years. The leading exporter of self-propelled howitzers aims to increase its sales and operating profit to Won70tn and Won10tn, respectively, by 2035 through overseas expansion.
Hanwha recently took a 9.9 per cent stake in Australian shipbuilder Austal after the group’s failed $1bn takeover bid last year. Shipbuilding affiliate Hanwha Ocean is seeking growing co-operation with the US Navy after securing two naval maintenance, repair and operations contracts last year.
But the share sale plan has sparked a backlash from investors, who fear it will dilute the stock’s value. The country’s financial watchdog, the Financial Supervisory Service, is reviewing the sale after investor complaints, although FSS governor Lee Bok-hyun said he was looking at it “very positively”.
Analysts said Hanwha could have funded its expansion plans with its own cash flow, citing its surging earnings. Hanwha’s operating profit nearly tripled to Won1.7tn last year on revenues that rose more than 40 per cent to Won11.2tn.
Choi Gwang-shik, an analyst at Daol Investment & Securities, estimated Hanwha’s operating profit this year would reach about Won3.5tn.
“I agree with the need to localise production in Europe and the Middle East and to expand into the US fighter jet market, but its funding method is regrettable,” he said in a report on Friday.
“It can fund its capital spending over the next five years with the operating profits expected this year and beyond.”
