AnalysisHanwha Ocean stocks pressured by KDB share sale overhang
State-owned development bank starts to sell its stake after 25 years
U.S. Navy logistics ship Wally Schirra sets sail after undergoing maintenance by Hanwha Ocean near its Geoje Island shipyard in South Gyeongsang Province, March 13. Courtesy of Hanwha Ocean
Hanwha Ocean's stock price is likely to be weighed down by pressure from the Korea Development Bank's (KDB) plan to sell its 19.5 percent stake, analysts said Tuesday.
Following the announcement of KDB's stake sale plan, the shipbuilder's shares closed at 78,500 won ($55), plummeting by 12.09 percent, while the country's benchmark KOSPI rose by 0.65 percent.
The analysts attributed the drop to fears of a stock overhang as the state-owned development bank began selling its stake after 25 years of ownership.
Stock overhang refers to a situation where a large volume of shares could enter the market, raising fears of future selling pressure and a weakening in investor confidence.
According to sources in the investment banking industry, KDB signed an agreement to offload its 13 million shares — representing a 4.2 percent stake in Hanwha Ocean — through a block deal before the market opened on Tuesday morning.
The sale price was set at 81,650 won per share, offering a discount of about 8.57 percent compared to the previous day's closing price of 89,300 won. The total transaction is valued at about 1 trillion won.
The bank reportedly plans to gradually sell its remaining stake in the shipbuilder following this block deal, targeting sales of 3 to 5 percent at a time.
iM Securities analyst Byun Yong-jin noted that KDB's stake sale could have a positive effect by increasing the free float, given that Hanwha Ocean's actual free float stands at around 26.8 percent, excluding the largest shareholder, KDB and the National Pension Service.
He added, however, that "in terms of the stock price, the 19.5 percent overhang will likely continue to weigh on shares for the time being."
KDB originally acquired its stake in Hanwha Ocean’s predecessor, Daewoo Heavy Industries, through a debt-to-equity swap in 2000. It currently holds approximately 59.7 million shares, representing about 19.5 percent of the company.
A KDB official said the decision on a full divestment of the remaining stake will be made carefully, taking into account the potential impact on the market.
The decision to sell appears to be driven by Hanwha Ocean’s recent share price surge amid a boom in the global shipbuilding industry. The stock, which traded at 25,400 won in August 2024, recently soared past 90,000 won and reached an all-time intraday high of 95,300 won on Monday.
The sale could also help boost KDB's Bank for International Settlements capital adequacy ratio, which currently stands at 13.9 percent — the lowest among domestic banks — amid growing pressure to improve its overall financial health.
Despite the stock dip, analysts remain bullish. Seven brokerages raised the target price to about 91,000 won, backed by stronger-than-expected first-quarter earnings.
The company posted 3.14 trillion won in sales and 258.6 billion won in operating profit, representing year-on-year increases of 37.6 percent and 388.5 percent, respectively.
Further optimism came as the U.S. government requested cooperation from Korea in the shipbuilding sector, easing concerns about potential trade restrictions or tariffs.
"The sharp upward trend in profits, a stable order pipeline, and continued expectations for expansion in commercial and specialty shipbuilding — particularly in the Americas — remain firmly in place," said LS Securities analyst Lee Jae-hyuk.