Young Poong, MBK: "Discount Rate Exceeds 10% Due to Exchange Rate Fluctuation, Violating the Law"
Korea Zinc: "Lawful Procedure... Claims Amount to Distortion of Facts"
The rights offering by Korea Zinc, which involves participation from the U.S. government, has sparked a dispute over the exchange rate. The two sides are at odds because the per-share price changes depending on the timing of the won-dollar exchange rate applied when paying for the new shares, which grant about a 10% stake through a third-party allocation. The largest shareholder, Young Poong and MBK Partners, argue that this constitutes a violation of the Capital Markets Act, while Korea Zinc maintains that there is no issue.
On December 15, Korea Zinc's board of directors resolved to carry out a rights offering worth 2.8508 trillion won for Crucible JV, a U.S. joint venture involving the U.S. government. The company later disclosed that payment was completed on December 26.
The disclosed amount at that time was a won-denominated sum equivalent to 1,903,998,872 dollars. According to the board meeting minutes, Korea Zinc applied the first posted exchange rate from Hana Bank on the payment date, which was 1,460.60 won per dollar. Based on this, the total amount in won for the new shares issued was 2.8335 trillion won, which is 17.3 billion won less than the originally planned 2.8508 trillion won at the time of the rights offering resolution.
Young Poong and MBK Partners pointed out this discrepancy. When the total won amount is divided by the number of shares, the price per new share is 1,280,231 won, which is 10.31% lower than the reference share price of 1,429,787 won. Young Poong and MBK Partners argued, "According to the Capital Markets Act, the discount rate for new shares issued through a third-party allocation must be within 10%. Issuing new shares with a discount exceeding 10% could be considered illegal."
They further criticized, "This new share issuance, which violates the Capital Markets Act's pricing regulations, is a serious matter that could render the issuance null and void. Korea Zinc must resolve this issue lawfully as soon as possible through methods such as a new board resolution or a corrective disclosure."
If, as Young Poong and MBK Partners claim, the financial authorities demand a corrective disclosure, the rights offering may have to be redone. In that case, if the process extends beyond the shareholder registry closure date for the regular general meeting (December 31), the shares allocated through this rights offering will not be able to exercise voting rights. This would make it difficult for the U.S. government to play the role of "white knight" for Korea Zinc Chairman Choi Yoonbum.
In response, Korea Zinc issued a statement, denouncing the claims as malicious distortion of facts and signaling legal action. At the time of the board resolution, Korea Zinc set the per-share issue price at 877.94 dollars and applied Hana Bank's first posted exchange rate from December 12, the previous business day, at 1,469.50 won per dollar, calculating the won-denominated price at 1,290,133 won. This represented a 9.77% discount compared to the reference share price based on Korea Zinc’s market value.
A Korea Zinc official stated, "The discount rate does not change retroactively based on exchange rate fluctuations after the board resolution. Creating market confusion by suggesting that a new share issuance, which the court has approved as lawful, is controversial after the fact is a highly malicious act of market disruption and will inevitably result in serious legal liability."
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