Choi Yun-beom Bets on 'Additional Allies'... Yeongpung and MBK Shareholding Likely to Decrease

Korea Zinc Decides on 2.5 Trillion Won Capital Increase
Additional Friendly Stake Acquisition Possible
Major Shareholder Likely to Change if MBK Does Not Participate

On the 30th, Korea Zinc announced it will proceed with a rights offering worth 2.5 trillion KRW through a general public subscription, raising expectations that it could secure additional 'white knights.' This move opens the possibility of forming alliances not only with domestic and international companies that have had relationships with Korea Zinc but also with overseas institutional investors.

Youngpoong and MBK Partners, who became the largest shareholders of Korea Zinc through a tender offer, are concerned that their shareholding percentages will be diluted by the sudden rights offering decision and that they might lose in future proxy battles at extraordinary shareholders' meetings.

[Image source=Yonhap News]

On the same day, Korea Zinc held a board meeting at its headquarters in Jongno-gu, Seoul, and resolved to issue 3,732,650 new shares at 670,000 KRW per share (estimated price) through a general public offering. The total number of Korea Zinc shares will be 20,703,283, accounting for 18% of the total shares.

Notably, general investors can also participate in this rights offering, but special related parties are limited to subscribing to only 3% of the offered shares. Chairman Choi Yun-beom of Korea Zinc, Youngpoong, and MBK can secure only an additional 111,979 shares (0.6%) even if they participate to the maximum extent.

Additionally, 20% of the new shares (746,530 shares) were preferentially allocated to the employee stock ownership association. Assuming Chairman Choi and MBK participate to the fullest extent, the management control of Korea Zinc will depend on the direction of the remaining 74% of the issued shares.

After the tender offer, both sides hold shares as follows: Youngpoong and MBK hold 38.47% of Korea Zinc shares, while Chairman Choi's side is estimated to hold 35.4%. The difference is roughly 3 percentage points.

If MBK does not participate in the rights offering, the addition of shares allocated to the employee stock ownership association is expected to give Chairman Choi's side the lead in shareholding.

Another point of interest is who will participate in the rights offering. Since this rights offering is conducted through a general public subscription, anyone can participate. Domestic and international companies currently cooperating with Korea Zinc, including Hanwha Group, Hyundai Motor, LG, Korea Investment & Securities, Chosun Refractories, and Trafigura, may also participate.

There is also a possibility that Japan's SoftBank, which Chairman Choi has been in contact with, or the US private equity firm Kohlberg Kravis Roberts (KKR), considered one of the world's top three private equity firms, might join.

Youngpoong and MBK strongly oppose the decision to proceed with the rights offering. They have stated they will take all legal measures to block the rights offering. MBK criticized, saying, "This act disrupts existing shareholders and market order," and added, "After causing enormous financial damage to the company by conducting a tender offer for treasury shares at 890,000 KRW per share using high-interest loans, they are now trying to cover that financial damage with public funds."

Korea Zinc responded, stating, "This is a method to minimize market volatility and investor damage caused by a hostile takeover (M&A) and to protect the interests of Korea Zinc and all stakeholders." They also noted, "According to Article 165-6 of the Capital Markets Act, when issuing new shares through a general public subscription, a managerial purpose is not required, which is a common legal opinion. Therefore, the legality of the general public rights offering does not include the purpose as a subject of judgment," emphasizing that there is no legal issue.