SmartKarma "Increase in Tender Offer Price for Treasury Shares... Significant Risk to Korea Zinc's Financial Structure"

Global independent investment research platform SmartKarma has warned of the risks associated with Chairman Choi Yoon-beom's potential additional price increase for the company's share buyback.

Douglas Kim, an analyst at SmartKarma, stated in a report titled "Impact on KoreaZinc's Balance Sheet and Debt Ratios Post Massive Debt Raise Proposed by ChoiFamily" that "While Chairman Choi Yoon-beom may increase debt further to raise the share buyback price, this would impose greater risks on Korea Zinc's financial structure and does not appear to be in the best interest of Korea Zinc's minority shareholders," on the 5th.

Analyst Douglas Kim explained, "MBK Partners has offered the same buyback price, giving existing investors more time to assess the actual impact of the Choi family's decision to leverage the company heavily (the company taking on massive debt). Minority shareholders will maintain ownership as shareholders even after the buyback and will hope for the company's success. Nevertheless, if the company over-leverages, it will negatively affect the company's credit ratios and financial structure, and hinder Korea Zinc's core business capabilities," he analyzed.

He pointed out that under such a scenario, Korea Zinc's stock price could be readjusted to the 500,000 to 600,000 KRW range once the buyback ends. Douglas Kim also analyzed the interest coverage ratio resulting from the massive 2.7 trillion KRW debt raise.

With an annual interest expense of 189 billion KRW added due to the large-scale 2.7 trillion KRW debt at a high interest rate of up to 7%, the expected interest expense by the end of this year would reach 239 billion KRW, causing Korea Zinc's interest coverage ratio (EBITDA/Interest Expense) to sharply drop from 27.4 times to 5.7 times. The interest coverage ratio indicates the company's ability to bear interest costs and is one of the indicators of sufficient cash-generating capacity. In the concluding part of the report, Douglas Kim added, "At the current price of 830,000 KRW per share, most investors are likely to side with MBK Partners."