Domestic credit rating agencies, including Korea Investors Service, have evaluated Korea Zinc's plan to invest in an integrated smelter in the United States as an opportunity to strengthen its business competitiveness and secure mid- to long-term growth drivers. However, there are also observations that, despite short-term improvements in financial indicators, an increase in borrowings will be inevitable during the mid- to long-term investment execution process.
On December 22, Korea Investors Service stated this in its report titled "Korea Zinc Capital Increase and Announcement of Integrated Smelter Investment Plan in the United States." Previously, Korea Zinc had announced both a decision to raise capital through a paid-in capital increase and an investment plan to build an integrated non-ferrous metal smelter in the United States. The paid-in capital increase will be conducted via a third-party allotment, raising a total of 2.8508 trillion won. The total expected investment amounts to approximately 10.9 trillion won, with both capital raising and external borrowing planned in parallel.
Korea Investors Service first noted, "From a business perspective, expanding the production base in the North American market will enhance competitiveness and secure mid- to long-term growth engines." The agency added, "Through collaboration with the U.S. government and strategic investors in the United States, Korea Zinc's importance within the supply chain has increased. The company's strategic position is also expected to be strengthened through entry into national core industries such as defense."
From a financial perspective, the inflow of funds from the large-scale paid-in capital increase is expected to improve financial indicators in the short term. However, the agency projected that financial burdens will increase over the mid- to long term. Korea Investors Service stated, "During the course of the project, funds will be sequentially allocated for site acquisition, facility construction and investment, and initial operating expenses, resulting in rapid cash outflows." In addition, the agency noted that further external borrowing will increase the financial burden, and since commercial operation of the smelter may not begin in earnest until after 2029, uncertainties remain regarding the utilization rate and profitability. This suggests the potential for sustained mid- to long-term financial burdens.
Korea Investors Service also mentioned that MBK and Young Poong have filed for a provisional injunction to prohibit the issuance of new shares the day after the board meeting, in protest against the method of Korea Zinc's paid-in capital increase. The agency added that it will continue to monitor the progress of the capital increase and the direction of disputes over management rights.
?
Previously, NICE Investors Service also analyzed in last week's report, "Korea Zinc's Decision to Invest in a U.S. Smelter," that "this investment is expected to enhance business competitiveness and expand scale in the U.S. market." According to NICE Investors Service, the U.S. smelter in which Korea Zinc is investing will have about 50% of the production capacity of Korea Zinc's Onsan smelter and is expected to produce 13 types of non-ferrous metals and sulfuric acid for semiconductors.
In terms of financial stability, NICE Investors Service also forecast that while the short-term impact will be limited, in the medium term, free cash flow generation will be constrained and financial burdens will increase. As of the end of September, Korea Zinc's consolidated debt ratio stood at 96.3%, and its net debt dependency ratio was 23.6%, indicating overall strong financial stability. NICE Investors Service evaluated, "By 2029, when the smelter construction is completed, the debt ratio is expected to rise and the net debt dependency ratio to increase, leading to greater financial burden."
Korea Ratings also stated in a report released last week, "Given the scale of the U.S. smelter investment, which amounts to 10.9 trillion won, an increase in financial burden is inevitable." However, the agency also assessed that "the expected enhancement of mid- to long-term business competitiveness and profitability is a positive factor." Korea Ratings predicted, "Securing a local smelter in the United States will solidify Korea Zinc's position as the world's leading non-ferrous metal smelting company, and the increase in rare metal production will help the company be incorporated into the U.S. security supply chain, thereby contributing to the improvement of mid- to long-term business competitiveness and profitability."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
