[Reporter Reading Securities Report] Korea Zinc Raises 2.5 Trillion Won in Rights Offering to Repay Debt and Secure Shares Through Tender Offer

Stock Hits Lower Limit on June 30 Rights Offering News
Only 200 Billion Won Invested... 2.3 Trillion Won Debt 'Repaid'

Korea Zinc is suddenly conducting a shareholder-allocated general public offering rights issue. This is to repay the 2.3 trillion KRW in borrowings recently taken out for the tender offer. It is interpreted that this rights issue will also secure friendly shares.

According to the Financial Supervisory Service's electronic disclosure system on the 31st, Korea Zinc plans to proceed with the rights issue through a general public offering. They will issue 3,732,650 shares at 670,000 KRW per share, raising approximately 2.5009 trillion KRW.

For reference, Korea Zinc recently conducted a tender offer amid a management rights dispute with MBK Partners and Youngpoong. Korea Zinc's tender offer price was 890,000 KRW, while MBK Partners and Youngpoong offered 830,000 KRW.

Investors seem likely to be taken aback by this rights issue, as it is being conducted suddenly. Recently, Korea Zinc's stock price had continuously risen due to the management rights dispute, reaching as high as 9th in market capitalization. However, due to the rights issue disclosure on the 30th, the stock hit the lower limit price. The market capitalization, which had reached 31 trillion KRW, has nearly lost 10 trillion KRW.

In particular, the use of funds may also cause dissatisfaction among investors. According to the securities registration statement, Korea Zinc plans to use 135 billion KRW of the raised funds for Onsan smelter facility investment and 65.8 billion KRW for capital investment in subsidiaries to promote new businesses.

Aside from these 200 billion KRW, the remaining 2.3 trillion KRW will be used entirely to repay borrowings. Specifically, 400 billion KRW to Hana Bank, 500 billion KRW to SC Bank, 1 trillion KRW to Meritz Securities, 200 billion KRW to Korea Investment & Securities, and 200 billion KRW to KB Securities. For reference, the total borrowing limit was 3.1 trillion KRW.

However, this appears to be the amount Korea Zinc recently borrowed to conduct the tender offer. The tender offer prospectus confirms that Korea Zinc borrowed 1 trillion KRW from Meritz Securities and 1.6 trillion KRW from Hana Bank and SC Bank. The private equity firm Bain Capital, which also conducted the tender offer, through its special purpose vehicle Troika Drive Investment (TROIKA DRIVE INVESTMENT, L.P.), borrowed 370 billion KRW from Korea Investment & Securities.

An important point to note in this rights issue is the subscription limit. Of the total shares offered in this rights issue, 20% will be allocated to the employee stock ownership association, and the remainder will be offered through general subscription. However, due to the subscription limit, except for the employee stock ownership association, no one can subscribe for more than 3%.

As a result, the employee stock ownership association, which can be considered a friendly force of Chairman Choi Yoon-beom of Korea Zinc, will be allocated 4%. Meanwhile, MBK Partners and Youngpoong, currently in a management rights dispute with Korea Zinc, will only receive 0.6%.

Korea Zinc plans to finalize the issue price on the 28th of next month and announce it the following day. Then, on December 3rd, the employee stock ownership association subscription will take place, followed by the general public subscription from the same day to the next day.

However, the outcome of this rights issue is uncertain. MBK and Youngpoong have announced that they will take all legal measures to block Korea Zinc's rights issue, signaling their response.

The reaction of financial authorities will also be a variable. Since Korea Zinc stated in the tender offer prospectus that "no specific future plans that would change the company's financial structure after the tender offer have been established," it is unclear how the Financial Supervisory Service will respond to this.