Financial Supervisory Service Cross-Checks Alleged Irregular Transactions of Korea Zinc

KB Securities Also Begins On-Site Inspection
Verifying Consistency of Tender Offer, Paid-in Capital Increase, and Official Statements

[Image source=Yonhap News]

The Financial Supervisory Service (FSS) is cross-verifying whether there was any illicit trading related to the tender offer and rights offering decided by Korea Zinc. Following the on-site inspection of Mirae Asset Securities on the 1st, an on-site inspection of KB Securities is also underway. Both securities firms are the lead managers for Korea Zinc's tender offer and joint lead underwriters for the rights offering.

On the 4th, a senior FSS official stated, "KB Securities, along with Mirae Asset Securities, is the lead manager for Korea Zinc's tender offer and rights offering," adding, "We are conducting on-site inspections to verify whether there is logical consistency among Korea Zinc's tender offer filing, rights offering securities registration statement, and Korea Zinc's official statements."

This is interpreted as the FSS initiating cross-verification to determine whether Korea Zinc engaged in illicit trading. Previously, Korea Zinc conducted a tender offer for its own shares from the 2nd to the 23rd of last month. However, controversy arose when it announced a rights offering plan to newly issue shares equivalent to 20% of the issued shares as of the 30th, aiming to raise 2.5 trillion KRW.

The key issue is whether the rights offering plan was decided in advance before initiating the tender offer. According to the tender offer explanatory statement disclosed by Korea Zinc on the 4th, there is no mention of a rights offering plan under the 'Purpose and Future Plans of the Tender Offer.'

The FSS points out that the tender offer period (October 2?23) and the corporate due diligence period for the rights offering (October 14?29) partially overlap. The FSS's logic is that if the Korea Zinc board of directors proceeded with the process while fully aware of both the plan to acquire and retire treasury shares (tender offer) and the plan to repay borrowings through the rights offering, it could be considered illicit trading.

At a briefing on the 1st, Ham Yong-il, Deputy Governor of the FSS, said, "If the Korea Zinc board of directors was aware of the plan to acquire and retire treasury shares through borrowing and then repay the borrowings through a rights offering, and proceeded sequentially with these procedures, it means that significant information was omitted from the existing tender offer filing, and there is a high possibility of illicit trading."

In response, Korea Zinc explained, "The notation of the due diligence report starting from the 14th was a misstatement related to reviewing debt procurement methods such as corporate bonds and commercial paper with securities firms for low-interest debt financing in connection with handling borrowings from the treasury share tender offer." In other words, they claim it was a simple error with no legal issues.

The FSS appears to be seeking to verify Korea Zinc's logical basis through on-site inspections of Mirae Asset Securities and KB Securities, the lead managers for the tender offer and the main underwriters for the rights offering. An FSS official said, "On-site inspections of the securities firms, which are the lead managers, are necessary to verify Korea Zinc's claims," adding, "If the securities firms also abetted illicit trading, they must be held accountable."

Meanwhile, the FSS is thoroughly investigating the Korea Zinc tender offer and rights offering controversy using all available authority. The Financial Investment Inspection Bureau and the Investigation Bureau are responsible for determining whether illicit trading occurred. If serious illicit trading is confirmed, the case will be immediately referred to investigative authorities.

The Disclosure Review Office is reviewing the contents of the securities registration statement for the rights offering. Although they can request amendments to the registration statement until the 14th, a decision is expected as early as this week. Separately, the Accounting Supervision Team is conducting an accounting review.