MBK "Chairman Choi Yunbeom, Difficult to Secure 2 Trillion Won Funding"

Dispersion of Choi Family Shares... Difficult to Raise 500 Billion Won
Brokerage Loan-to-Value Ratio Around 40%... Excessive Loans Difficult Under Current Law

MBK Partners (hereinafter MBK), which is conducting a public tender offer for Korea Zinc, anticipated that it would not be easy for Chairman Choi Yoon-beom of Korea Zinc to raise funds on the scale of 2 trillion won for the public tender offer. This is because it is difficult under current regulations for securities firms, including Korea Investment & Securities, which is mentioned as Chairman Choi's 'white knight,' to lend funds exceeding the usual loan-to-value ratio (LTV) as collateral to Chairman Choi.

According to MBK Partners on the 22nd, securities firms typically apply a loan-to-value ratio (LTV) of around 40% for stock-backed loans to the largest shareholders of a company. This means that only about 40% of the value of the stocks provided as collateral by the major shareholder is lent as money.

[Photo by Yonhap News]
Kim Kwang-il, Vice Chairman of MBK Partners, is presenting the background for launching the tender offer at a press conference related to MBK Partners' tender offer for Korea Zinc, held on the morning of the 19th at Lotte Hotel in Jung-gu, Seoul.

According to financial investment business regulations, collateral is set considering the trading situation of each stock. Although the stock price of Korea Zinc has recently surged due to the management rights dispute issue, MBK explained that the stock price before the public tender offer must be used as the basis when calculating the collateral value.

Chairman Choi is reportedly raising funds for a counter public tender offer through Korea Investment & Securities and others. The shares of Korea Zinc held by Chairman Choi and his special relations amount to 15.6%. Applying the above criteria, it is theoretically estimated that a maximum of about 500 billion won in stock-backed loans could be obtained. MBK Partners expects that even if Chairman Choi actually proceeds with stock-backed loans, it will not be easy to raise funds on the scale of 500 billion won.

Since Chairman Choi Yoon-beom's personal stake is only 1.8%, the Choi family’s shares are dispersed, and the 15.6% includes foreign-held shares that cannot be used as collateral for loans, and securities firms have internal regulations limiting stock-backed loans to major shareholders due to the risk of forced sale recovery, the maximum of about 500 billion won is merely a theoretical figure with low feasibility. If a loan exceeding the usual level and reaching the maximum limit is attempted, financial investment firms would have to bear the risk of damaging their financial soundness and provide preferential treatment to a specific individual, which would inevitably be closely monitored by regulatory authorities for potential violations.

MBK stated, "If Korea Investment & Securities provides loans with an LTV higher than the usual scale based on the personal friendship between Chairman Kim Nam-gu and Chairman Choi Yoon-beom, as rumored in the market, there is a risk of violating Article 35 of the Capital Markets Act, which restricts transactions with third parties under unusual conditions for the benefit of a major shareholder against the interests of the financial investment business operator."

In particular, Korea Investment & Securities is expected to be more cautious as it was embroiled in controversy in November 2022 for acquiring treasury shares of Korea Zinc due to personal friendship, which almost caused losses to the company. At that time, the acquisition price per share by Korea Investment & Securities was 658,000 won, and the stock price of Korea Zinc once fell to 435,000 won, resulting in a loss of about one-third of the purchase price being recognized.