Korea Zinc Affiliate Buys Youngpoong Shares for 57.5 Billion Won Despite 37 Billion Won Loss

SMC Posts Q4 Loss Due to Large Compensation Costs
Spends Half of Annual Capital Expenditure to Buy Yeongpung Shares
Yeongpung and MBK: "Affiliates Sacrificed for Choi Yoonbeom"

Sun Metal Corporation (SMC), wholly owned by Korea Zinc, has been criticized for purchasing Yeongpung shares worth 57.5 billion KRW to defend the management rights of Chairman Choi Yoon-beom of Korea Zinc despite operating at a loss.

On the 7th, Yeongpung and MBK Partners claimed that SMC's acquisition of Yeongpung shares was purely for defending management rights. They argued that the company bought corporate shares unrelated to its business while incurring losses.

According to the Q4 earnings report released by Korea Zinc on the 5th, SMC recorded sales of 109.11 million USD (approximately 157 billion KRW) and an operating loss of 25.454 million USD (approximately 37 billion KRW) in Q4 last year. The net loss amounted to 19.396 million USD (approximately 28 billion KRW). Sales decreased by 29.2% compared to the same period last year, turning into a loss.

Yeongpung and MBK stated, "Korea Zinc explained that SMC's operating profit declined in Q4 due to large compensation costs, but from SMC's perspective, since substantial funds are needed for compensation costs, it is abnormal to decide to spend 57.5 billion KRW of company funds to purchase Yeongpung shares unrelated to its core business," adding, "57.5 billion KRW corresponds to half of SMC's average annual capital expenditure of 106.4 billion KRW from 2019 to 2023."

Earlier, on the 22nd, a day before the extraordinary general meeting, Korea Zinc's Australian subsidiary SMC purchased approximately 190,000 Yeongpung shares (10.33%) held by Chairman Choi's family and Yeongpung Precision for 57.5 billion KRW in an over-the-counter transaction. Through this, Korea Zinc, Sun Metal Holdings, SMC, Yeongpung, and back to Korea Zinc created a circular cross-shareholding structure, utilizing the 'mutual share voting rights restriction' system under the Commercial Act. When a business group subject to mutual share restrictions holds more than 10% of each other's shares, they cannot exercise voting rights in the counterpart company. This measure locked the voting rights of 25.42% of Yeongpung shares held by Yeongpung within Korea Zinc's stake. With the voting rights advantage, Chairman Choi's side successfully defended management rights by placing all seven desired director candidates on the board.

A representative from Yeongpung and MBK said, "SMC's acquisition of Yeongpung shares could not have been made through independent management judgment and was revealed through earnings disclosures to have been carried out under Chairman Choi's instructions," criticizing, "Chairman Choi's illegal actions, which disregard the sacrifices of affiliated companies for his own benefit, severely undermine the foundation of corporate group regulations that prohibit mutual shareholding."

Choi Yoon-beom, Chairman of Korea Zinc, is speaking at a Korea Zinc press conference held on the 13th at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul. On the right is CEO Park Ki-deok. On this day, Chairman Choi stated, "I will step down from the position of chairman of the board as soon as possible and have an outside director take over as chairman of the Korea Zinc board." Photo by Kim Hyun-min