"SoftBank, Bain Capital, etc. have no exit strategy"
"Acquisition of partner company shares... Chairman Choi exposed to breach of trust charges"
MBK Partners, which is pursuing a tender offer for Korea Zinc, claimed on the 23rd that several problems would arise if Korea Zinc were to launch a counter-tender offer.
MBK stated on the same day, "The unclear exit strategy for overseas strategic investors (SI) or financial investors (FI) who acquire shares at the elevated prices through the tender offer will become a stumbling block."
Recently, there have been predictions that Korea Investment & Securities, led by Kim Nam-gu, chairman of Korea Financial Group and a close acquaintance of Korea Zinc Chairman Choi Yoon-beom, will launch a counter-tender offer against Korea Zinc.
MBK explained, "There are about two scenarios for Korea Investment & Securities' counter-tender offer. First, final investors such as Japan's SoftBank, the US private equity firm Bain Capital, or raw material suppliers or partners from Japan, Europe, or Australia agree to purchase Korea Zinc shares at a counter-tender offer price higher than the market price, with Korea Investment & Securities providing a one-year bridge loan due to time constraints."
They added, "The problem with SoftBank or Bain Capital is that they lack an exit strategy. When acquiring shares at prices elevated by the tender offer, it is impossible to sell them in the stock market as the stock price reverts." Furthermore, "Chairman Choi's side does not have the financial capacity to compensate SoftBank or Bain Capital for losses after a stock price decline, so ultimately, including the Choi family's shares, they will have no choice but to seek investment recovery through a management rights sale," they pointed out.
Additionally, MBK emphasized that Hyundai Motor, Hanwha, LG, and others known as Chairman Choi's friendly shareholders have not filed a 5% report regarding joint sale agreements, making joint sales impossible.
MBK stated, "Compared to the current largest shareholder, the combined shareholding of 'SoftBank (or Bain Capital) + the Choi family' is low, making investment recovery through management rights sales practically impossible, resulting in no real exit strategy."
Moreover, MBK viewed it as possible for suppliers or partners of Korea Zinc, such as Trafigura, Glencore, or Japan's Sumitomo, which hold some shares in Korea Zinc, to purchase shares at high prices.
However, "Their need for investment recovery is low," MBK noted, "and such transactions are likely to become breach-of-trust deals that sacrifice Korea Zinc's long-term interests to defend Chairman Choi's personal management rights, raising the probability of problems." They also said, "Since suppliers or partners acquire shares at high prices, they may seek benefits through high margins (prices) in transactions with Korea Zinc or form exclusive trading relationships under the pretext of alliances to secure additional profits."
MBK continued, "The second scenario is conducting a counter-tender offer by raising temporary short-term funds for up to about one year without finding a final investor," explaining, "This applies when Korea Investment & Securities provides bridge loans and foreign private debt funds provide only bridge equity."
They added, "Providing short-term financing while bearing risks without knowing when it will be repaid is an unreasonable investment for both securities firms and foreign private debt funds, and the likelihood is low," and pointed out, "It involves bearing risks beyond the limits allowed by various loan-related regulations under the Capital Markets Act, which could raise issues of violating Article 35 of the Capital Markets Act."
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