Yeongpung·MBK "Koryo Ahnyeong to Acquire Treasury Shares at 830,000 KRW per Share... Breach of Fiduciary Duty and Illegal Procedures"

Value of Treasury Shares Acquired at 830,000 KRW per Share Likely to Drop Over 30% After Tender Offer Ends
27 Trillion KRW High-Interest Short-Term Borrowings... Annual Interest Expected to Reach 150 to 180 Billion KRW
To Enable Large-Scale Treasury Stock Acquisition, Shareholders' Meeting Resolution Required to Increase Dividend-Available Profit Limit First

"Korea Zinc's tender offer to acquire treasury shares at 830,000 KRW per share through a short-term borrowing of 2.7 trillion KRW at a high interest rate of up to 7% is an act of breach of trust that causes significant financial loss to the company and worsens its financial structure for the benefit of a specific shareholder. Furthermore, to enable the acquisition of treasury shares worth 2.7 trillion KRW, a shareholders' meeting must first be held to increase the amount of distributable profits, but attempting to forcibly proceed with a large-scale tender offer for treasury shares solely by board resolution without following such legal procedures is also an act violating the Commercial Act."

On the 3rd, MBK Partners and Young Poong issued a press release titled "The reckless tender offer for treasury shares that harms Korea Zinc is 'illegal' and must be stopped immediately," stating this.

MBK and Young Poong explained, "Korea Zinc's tender offer to acquire treasury shares is an act of breach of trust against Korea Zinc because it causes enormous financial losses to the company in order to protect Chairman Choi Yoon-beom, who holds a 2.2% stake and acts as a management agent, under the pretext of 'management rights,' and seriously damages the shareholder value of the remaining shareholders. Therefore, we filed a provisional injunction to suspend the tender offer process for treasury shares." Young Poong also filed criminal charges against the directors who approved the tender offer for treasury shares.

They explained that while the first provisional injunction filed on the 13th of last month was to determine whether MBK Partners and Young Poong were 'special related parties' during the existing tender offer period, the second provisional injunction filed on the 2nd is to suspend the tender offer Korea Zinc intends to proceed with, citing 'breach of trust and illegality.' In other words, although Korea Zinc was ruled not to be a special related party and thus allowed to acquire treasury shares during MBK Partners and Young Poong's tender offer period, this does not mean Korea Zinc is permitted to acquire treasury shares arbitrarily under any conditions or methods. The content of Korea Zinc's treasury share acquisition (price, quantity, method) was not reviewed in the first injunction and will be judged for illegality in the second injunction.

MBK stated, "Considering the tendency for stock prices to revert to previous levels after the tender offer ends, the value of the shares Korea Zinc plans to acquire at 830,000 KRW per share is likely to drop by more than 30% in the near future." They added, "According to media reports, Korea Zinc borrowed a large sum of 2.7 trillion KRW at a high interest rate of up to 7% from financial institutions to fund the treasury share acquisition tender offer, so the annual interest burden Korea Zinc will bear is expected to reach 150 billion to 180 billion KRW." They estimated that Korea Zinc's debt ratio will also increase, and considering additional funding for already planned investments, the debt ratio is expected to rise from 36.5% at the end of June to 90-100% by the end of the year.

MBK pointed out, "Despite the expectation of such enormous financial and fiscal damage, Chairman Choi Yoon-beom and the board members' approval of the tender offer for treasury shares constitutes breach of trust in the course of business and violation of the duty of care and loyalty, as they disregarded Korea Zinc's losses and acted to protect Chairman Choi's management rights."

Furthermore, they reiterated, "To acquire treasury shares for cancellation worth 2.7 trillion KRW, which exceeds the distributable profit limit approved at the last regular shareholders' meeting based on the financial statements, Korea Zinc must hold another shareholders' meeting to increase the amount of distributable profits by using the voluntary reserves set aside for new and overseas businesses. The board's decision to acquire treasury shares without such a preceding shareholders' resolution is clearly defective, which is why this issue was included in the second provisional injunction application."

Korea Zinc has separately reserved part of its retained earnings as voluntary reserves (voluntary reserves) for overseas investments or resource business investments, restricting their use. Since the shareholders' meeting is the final authority to approve the financial statements, including the statement of retained earnings appropriation and voluntary reserves, the board of directors, which does not have the authority to approve financial statements, cannot ignore the shareholders' meeting decision and use voluntary reserves as a source for dividends.

A Young Poong official said, "The reason Korea Zinc is risking its financial condition, causing losses, and pushing forward without following proper procedures is to protect the management rights of Chairman Choi Yoon-beom, who is only a 2.2% shareholder and a management agent. As the largest shareholder, Young Poong naturally raises these issues of illegality and defects for the benefit of all Korea Zinc shareholders and seeks the court's judgment."