Korea Zinc, Young Poong clash again over U.S. JV investment

(Yonhap)

The management control dispute between Korea Zinc and its largest shareholder alliance led by Young Poong and MBK Partners is flaring up again, this time over an investment in a U.S. smelter project.

According to industry sources on Monday, the Seoul Central District Court is expected to rule as early as this week on a request by Young Poong and MBK to block Korea Zinc’s planned issuance of new shares through a third-party allotment. With the scheduled issuance date set for Dec. 26, a decision is widely expected before then.

The court held a hearing on Dec. 19 and is currently reviewing submitted materials. If the injunction request is dismissed, Korea Zinc will proceed on Dec. 26 with the issuance of 2.21 million new shares through a third-party allocation, followed by the payment process.

Under the plan, a joint venture tentatively named Crucible JV — to be jointly established by Korea Zinc and the U.S. government — would acquire a 10 percent stake in Korea Zinc. The company says the structure is designed to finance a U.S.-based smelter construction project and strengthen its foothold in North America. The Young Poong–MBK alliance, however, argues that the move effectively serves as a defensive measure to protect Chairman Choi Yoon-beom’s management control.

Young Poong and MBK contend that even if a final joint venture agreement is not concluded, the JV would still retain the 10 percent stake, creating what they describe as an abnormal structure. They argue that in standard joint ventures, rights and obligations are finalized through definitive agreements before new shares are issued, whereas in this case, the share issuance would precede the final contract, allowing the JV to secure equity regardless of whether the deal is ultimately completed.

If the court sides with the Young Poong–MBK alliance, delays to the U.S. smelter project would be unavoidable, industry watchers said. While the project is being pursued at a task force level as part of a broader U.S. supply chain realignment, making outright cancellation unlikely, a postponement of the investment is seen as possible.

The dispute dates back to September last year, when the Young Poong–MBK alliance launched a tender offer in an attempt to gain management control. In response, Chairman Choi’s camp moved to limit Young Poong’s voting rights by creating a circular shareholding structure via Australian affiliate Sun Metals Corporation (SMC).

That maneuver allowed Chairman Choi to narrowly defend control at an extraordinary shareholders’ meeting in January. However, a court later accepted parts of an injunction request, ruling that the grounds for restricting SMC’s voting rights were insufficient.

Ahead of the March regular shareholders’ meeting, Chairman Choi’s side countered again by establishing a new investment structure through Sun Metals Holdings, the parent company of SMC. While Young Poong and MBK sought an injunction to restore voting rights, the court dismissed the request, enabling Chairman Choi’s camp to retain control of the board. Even so, the gap in shareholdings between the two sides remains narrow.

The Young Poong–MBK alliance is aiming to secure a majority of board seats at the regular shareholders’ meeting scheduled for March next year. Four figures from the alliance currently sit on the board, with additional nominees expected to be proposed next year.

Chairman Choi’s camp, meanwhile, is preparing new strategies to offset its disadvantage in shareholdings, as the terms of Chairman Choi, CEO Jung Tae-woong and other key directors are set to expire in March next year.

Support from the government and political circles for the U.S. smelter project has also bolstered Chairman Choi’s position. Democratic Party floor leader Kim Byung-kee described the project as “a rare case of direct U.S. government investment in a Korean private company,” while People Power Party lawmaker Kim Yong-tae called it “a symbolic example of advanced economic security cooperation between Korea and the United States.” Trade Minister Kim Jung-kwan also said the project would help stabilize supply chains and hinted at possible support from a Korea–U.S. strategic investment fund.

Legal tensions between the two sides are expected to persist. The Fair Trade Commission is investigating the legality of the circular shareholding structure, while prosecutors are also probing related cases. Even if the court dismisses the injunction request over the third-party share issuance, analysts say the dispute is far from over, as the Young Poong–MBK alliance is likely to file an immediate appeal.