Kim Kwang-il MBK Vice Chairman "Chairman Choi Yoon-beom Steps Down as CEO, Just Need to Meet 'Pinpoint' Conditions" [Interview]

Expressing Strong Willingness to Reach Agreement with Second-Largest Shareholder Choi Family
Korea Zinc's Technical Talent Should Be Treated at a Global Top Level
Up to 15 Months Expected Until Full Control of the Board

In the ongoing four-month-long management rights dispute over Korea Zinc, Kim Kwang-il, Vice Chairman of MBK Partners leading the Youngpoong-MBK alliance, emphasized, "We want to reach an agreement with the second-largest shareholder, the Choi family," adding, "We only need to overcome the 'pinpoint' condition that Chairman Choi Yoon-beom will not remain as the CEO." Regarding concerns about internal unrest and employee attrition at Korea Zinc, he stated, "Korea Zinc is a company with about 1,900 employees generating approximately 13 trillion KRW in sales, creating tremendous added value," and promised, "We will treat the current executives and employees at a global top-tier level." Both sides will engage in a vote battle over control of the board at the extraordinary shareholders' meeting on the 23rd. Asia Economy met Vice Chairman Kim at the MBK office in Jongno-gu, Seoul, on the 13th to discuss the key issues of this shareholders' meeting and future response plans.

Kim Kwang-il, Vice Chairman of MBK. Photo by Yoon Dong-ju

-Currently, you have an advantage in the shareholding competition.

We hold 46.7% of the voting rights. Chairman Choi's side claims to have friendly shares, but how solid they are needs to be seen directly. Their side is around 40%.

-What do you think about the voting intentions of the National Pension Service and other shareholders?

We have been contacting them ahead of the extraordinary shareholders' meeting, and everyone seems to be in deep consideration. The decision of the National Pension Service (NPS) is the most feared. After ISS, the decision of the NPS's Stewardship Committee has significant impact. We don't know how it will conclude, but the NPS holds Korea Zinc as a 'simple investor' rather than a 'general investor,' meaning it has become a long-term investor. They sold the 3% stake managed by asset managers and now mostly hold 4.51% in their proprietary account, which follows a passive policy. They will consider this from a long-term perspective. If both sides in the dispute combine, it amounts to about 87.5%. General shareholders, including the NPS, hold 12.5%. We currently have 46.7%, so if just half of the general shareholders (12.5%) side with us, we have a majority.

-The outcome of the injunction request to prohibit the agenda on cumulative voting is important.

There are two hurdles. One is the amendment of the articles of incorporation to introduce cumulative voting, which is not subject to injunction. This is a 'proxy fight' matter. The second is whether to submit an agenda to elect directors by cumulative voting even if the articles are amended, which is subject to injunction. Chairman Choi must win both. He must amend the articles and win the injunction. We only need to win one of the two.

-If you could pinpoint the key points of confrontation at the shareholders' meeting on the 23rd.

The outcome will be decided early on. About 70% of the battle is decided on the articles amendment to introduce cumulative voting. Of course, the injunction decision will come before the shareholders' meeting. At that time, half of the battle will already be decided. If we win the injunction, regardless of the shareholders' meeting outcome, voting will be by simple majority, not cumulative voting. If we lose the injunction, the first agenda at the shareholders' meeting becomes very important. If the articles amendment passes, directors will be elected by cumulative voting, leading to a mechanical split between Chairman Choi's side and ours.

-Recently, the National Assembly's Legislative Research Office stated that it is necessary to verify whether MBK's Korea Zinc M&A falls under foreign investment regulations, due to MBK's major shareholder (Chairman Kim Byung-joo) being a foreigner. Have you conducted any legal review on this?

As far as I know, the Legislative Research Office responded to an inquiry by saying that it is not their direct jurisdiction but rather the Ministry of Trade, Industry and Energy's responsibility. The Legislative Research Office makes policy proposals and is not the place to ask such questions. I don't know why they asked there. We are not foreigners. The question itself is invalid. Nowadays, major domestic private equity fund (PEF) managers all receive foreign capital. Han & Company, IMM, and others all receive foreign capital. MBK is a Korean corporation and has no legal issues.

-Does the internal Investment Review Committee or Chairman Kim Byung-joo express opinions on this Korea Zinc matter?

In the Investment Review Committee, each member has one vote. Chairman Kim Byung-joo holds a kind of negative veto power, similar to a Chief Risk Officer (CRO). Negative veto means he cannot overturn a rejected proposal to approval, but if something is approved and he sees risk, he can veto it. Investing in 10 to 12 companies per fund means failure in one is very difficult. So he pays more attention to risk. It is hard to say Chairman Kim controls this. On our English business cards, both he and I are partners. In Korea, calling ourselves partners is difficult for business, so we use chairman and vice chairman titles.

Kim Kwang-il, Vice Chairman of MBK. Photo by Yoon Dong-ju

-Some Korean limited partners (LPs) and business circles seem to be critical of the Korea Zinc M&A.

We don't feel any criticism. We have failed to secure funding from some domestic LPs before, but not from those who previously funded us. We tried to get funds from new LPs but failed. MBK's investment strategy covers Korea, China, and Japan, and fund investment conditions differ slightly. So some LPs familiar with domestic GPs are inaccessible. This is not due to the Korea Zinc deal. Our relationship with conglomerates remains unchanged. We are currently working on deals with conglomerates. In fact, Youngpoong, which cooperates with us, is also a conglomerate. Youngpoong is acting as a white knight. Some people close to Chairman Choi exist, but that is beyond my control.

-What is the basis for MBK's claim that it can manage Korea Zinc better than the current management?

We want to remove uncertainty from this excellent company. Looking back over the past three years, or even the past two years, what has happened? There were noises like the Ignio investment, One Asia investment, tender offer, and public rights offering. These are uncomfortable risks for the company. They stem from one cause: Chairman Choi Yoon-beom. Existing employees may worry and feel uneasy. We need to communicate and explain more. As I clearly stated in the shareholder letter, both the Choi and Jang families should step down from management. The company should be run by the current professional management team. Employees actually working will hardly notice any difference. Their boss won't change, nor will the company's strategy.

-During the dispute, Korea Zinc's reputation, financial soundness, workforce, and technological competitiveness have suffered. Debt has increased through share buybacks, and interest burdens have risen. How will you recover?

Korea Zinc has about 1,900 employees generating 13 trillion KRW in sales, creating enormous added value. The employees should be treated not just as the best in Korea but at a global top level. Nowadays, it is difficult to find technicians in this field. Regarding financial soundness, debt has risen to 2 trillion KRW. Nevertheless, the 'troika drive' to promote new businesses such as secondary battery materials, renewable energy and green hydrogen, and resource recycling must continue. We cannot stop because of high debt. In the short term, debt will inevitably increase. With an EBITDA around 1 trillion KRW, we aim to keep debt at a manageable level. To do so, more disciplined investment activities are necessary. The company has announced 12 trillion KRW in investments over the next five years, but two areas are not urgent. One is the copper foil plant, which cannot operate now due to the electric vehicle demand chasm, so construction speed needs adjustment. The other is hydrogen-related investments in renewable energy, which should be adjusted according to technology development speed.

-You have consistently raised suspicions about the One Asia PE and Ignio investments. What do you see as the fundamental problem with these investments?

Simply put, the One Asia investment was problematic because it was made without board control. The board neither pre-approved nor post-approved the huge 560 billion KRW investment. If such a board is left as is, it will happen again. Initially, we thought the Ignio investment was problematic due to overpayment, indicating incompetence. However, as we obtained documents through litigation for inspection rights, we began to think the buyer and seller might be close. Someone made a 100-fold return on this investment, all private equity funds, but their identities are unknown. So the issue shifted from overpayment to the flow of money. The topic has become more serious than at the start.

-Within Korea Zinc, there is resistance to Youngpoong managing Korea Zinc due to Youngpoong's poor performance in the same smelting business. If you gain management rights, who will ultimately manage the company? MBK or Youngpoong?

No executives from Youngpoong will move to Korea Zinc. That is a promised matter. There will be no sudden transfer of Youngpoong executives. Youngpoong will only attend the board meetings.

-Then, in the relationship between MBK and Youngpoong, does MBK hold the final management rights?

It is true that management rights are shared. But management rights have many aspects. Daily management is done by the company's professional managers. Who holds personnel authority over them? That is the shareholders' right and the board's power. MBK leads personnel decisions. So even if Youngpoong wants to send someone, they cannot. This is not to belittle Youngpoong but to address concerns of those currently at Korea Zinc. The people in Ulsan are doing very well, and there is no benefit in disrupting that.

-Even if MBK wins the shareholding competition, Chairman Choi remains the second-largest and major shareholder.

We want to negotiate and reach an agreement with the second-largest shareholder group. Regardless of who wins the extraordinary shareholders' meeting, both we and the Choi family remain. We must reach an agreement. The most contentious issue is whether Chairman Choi will remain as CEO. This is the only hurdle. Our issue has been only with the Choi family's role in Korea Zinc's management, specifically Chairman Choi Yoon-beom. We have never officially challenged other Choi family members. This is intentional. At the end of all this, the Choi family still holds a 20% block. This is not a structure where one side can push out the other like a power struggle. The Choi family has had many excellent managers. The previous chairmen were outstanding, leaving great achievements in technology and management. But just because a father or uncle managed well does not mean the son or nephew will. That world is over.

-Is an agreement with Chairman Choi Yoon-beom possible?

There are several people in the middle who understand each other's thoughts. They know what we can offer. The only problem is that the first step cannot be taken. Everyone knows this clearly. There may be slight differences in views, but if we establish the principle of 'let's go together,' everything can be negotiated and agreed upon. But currently, the most difficult part is Chairman Choi continuing as CEO.

-If you fail to take control of the board at this shareholders' meeting, what are your next plans?

There is no choice. If cumulative voting is introduced, we cannot put in as many directors as we want. It will take time to secure a majority on the board. We will have to continue until the regular shareholders' meetings. The key point is not only how many directors we nominate but also how many directors on the other side resign. One director has resigned from Korea Zinc's 12-member board. Ten have voted with Chairman Choi's side. Their terms expire at the March regular shareholders' meetings this year and next year. We must endure patiently until their terms end. With cumulative voting, we can always elect one or two more directors than the other side due to shareholding differences. Then, if we remove directors well, we can gain control. The dispute could continue until March 2026 at the latest.

-I heard you are considering transferring Korea Zinc investments to a new fund after acquiring it through the 6th fund.

Correct. Theoretically, our fund is a 12-year fund (10 years plus 2 years), so it can last 12 years. But after about five years, profits will increase significantly. At that time, LPs' positions will differ. Some want to reinvest longer, others want to exit quickly. We often use continuation funds in such cases. Korea Zinc has never had a low shareholder return rate. It is a company with good dividend yields. As it transforms into a company handling core electric vehicle materials, its valuation will change. Through upcycling raw materials and producing EV materials, it is very environmentally friendly. Moreover, it produces gold and silver very well. Currently, the company is valued at 9 to 10 times EBITDA, while global leading companies in the same industry receive 13 to 14 times. The comparison group includes companies producing zinc, gold, and silver, but EV materials have different multiples. It will receive a completely different valuation.

-You mentioned that domestic large conglomerates are candidates to reacquire Korea Zinc in 10 years. Are there companies showing interest or communication?

-In 10 years, for Korean companies and industries to survive, they must enter new industries under the digital revolution. No one denies that one of these is electric vehicles. Korea Zinc will be a highly regarded company in the EV materials sector. It is also profitable. Then, it will become a company that Korean conglomerates can use as an engine for business restructuring. We will not delist Korea Zinc, making it easier for conglomerates to acquire.

Kim Kwang-il, Vice Chairman of MBK. Photo by Yoon Dong-joo

◇Kim Kwang-il, Vice Chairman of MBK=Graduated from Seoul National University with a degree in Business Administration in 1989 and completed the 24th Judicial Research and Training Institute. He worked as an M&A lawyer at Kim & Chang law firm. Joined private equity firm MBK in 2005 and invested in Hanmi Capital, Lotte Card, Homeplus, Osstem Implant, among others.