Hanwha Solutions (009830.KS) could face debt obligations totaling 1.8 trillion won ($1.3 billion) over the next two years if it fails to complete its rights offering by the end of next month and a credit rating downgrade materializes, an analysis showed. Higher funding costs could make refinancing difficult, and some loans may not be extended at all. Given the controversy over shareholder value erosion sparked by the surprise rights offering, analysts say the company urgently needs to reinforce its securities registration statement with a clearer justification for the capital raise.
According to the securities registration statement filed by Hanwha Solutions on Tuesday, debt that could face repayment or refinancing pressure if the company's credit rating falls from the current 'AA-' to 'A+' totals 1.8 trillion won through 2028. That is equivalent to 11.8% of total borrowings of 15.29 trillion won as of the end of last year. Of that amount, 915.1 billion won consists of bank loans, corporate bonds and commercial paper (CP) maturing this year, while 525 billion won represents credit lines that cannot be extended in the event of a rating downgrade.
In general, 'AA-' is considered the floor of prime investment-grade ratings (AAA to AA). From 'A+' and below, ratings are classified as non-prime investment grade (A to BBB), and interest rates on corporate bond issuance rise sharply. Hanwha Solutions plans to use most of the proceeds from the rights offering to repay debt precisely because it wants to improve financial soundness indicators and maintain a prime credit rating.
Two regular credit reviews are scheduled this year, one in the first half and one in the second half. The problem is that Hanwha Solutions' credit rating outlook has remained "negative" — indicating the possibility of a downgrade within one to two years — for two consecutive years since 2024, meaning a downgrade could come at any time without swift financial remediation.
Hanwha Solutions has already met the quantitative thresholds that credit rating agencies cite as downgrade triggers. Korea Ratings lists a ratio of net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) exceeding 3.5 times as a downgrade review factor, while NICE Investors Service cites a ratio of total debt to EBITDA above 4.5 times and net debt dependency above 30%. As of the end of last year, Hanwha Solutions' net debt-to-EBITDA ratio stood at 30.1 times, total debt-to-EBITDA at 36.5 times, and net debt dependency at 38.1%.
For Hanwha Solutions, completing the rights offering within the first half is essential to secure qualitative grounds for maintaining its credit rating, including easing short-term financial pressure and restoring earnings. The Financial Supervisory Service (FSS) requested a second revision of Hanwha Solutions' securities registration statement on April 30, suspending its effect. Given the physical time required for a rights offering, such as the listing and trading period for subscription warrants, concerns are mounting that the originally scheduled June 30 payment date could be pushed back.
Ultimately, the key is how thoroughly Hanwha Solutions can justify the rights offering in its third securities registration statement. In the first revision, the company cut the size of the rights offering from 2.4 trillion won to 1.8 trillion won and added a self-rescue plan centered on 600 billion won in asset sales and capital-like financing. The FSS reportedly questioned why Hanwha Solutions initially pursued a capital raise of more than 2 trillion won when it was able to add a large-scale asset sale plan in a short period, and why it did not consider converting non-operating assets such as real estate worth 5 trillion won into cash.
"The FSS's second revision request carries different weight from the first," an official familiar with the FSS review said. "Just a year ago, affiliate Hanwha Aerospace (012450.KS) struggled during its rights offering review, yet Hanwha Solutions is following a similar path."
