Dispute over Korea Zinc’s management continues to heat up

Chairman Choi Yoon-beom

The dispute over the management control of South Korean non-ferrous metal smelting company Korea Zinc Co. is escalating between the Chang and Choi families, the two key stakeholders in the company.

According to industry sources on Thursday, Korea Zinc Chairman Choi Yoon-beom traveled to Asia, including Tokyo, Japan, from Monday to Wednesday and visited major trading companies in Japan that have a long-standing business relationship with Korea Zinc. He also met with officials from global companies with regional headquarters in the Asia-Pacific region.

Upon his return from the trip, Choi sent a letter to executives and employees, expressing his strong determination to block MBK Partners’ tender offer. This is the first time Choi has publicly addressed the ongoing management dispute with Young Poong.

“While Korea came to a halt during the Chuseok holiday, our factories and all of Korea Zinc’s management worked non-stop,” Choi said in the letter. “This allowed us to stay fully focused, identify their weaknesses and mistakes, and figure out how to fight back and win.”

Sources noted that Choi‘s side is in discussions with several major securities firms to secure stock-backed loans to counter Young Poong and MBK Partners’ tender offer.

Choi plans to raise substantial funds through additional stock-backed loans and by securing white knights.

According to sources from the securities industry on Thursday, Choi’s family has already inquired about stock-backed loans with major Korean securities firms.

On the same day, Young Poong and MBK Partners held a press conference at Lotte Hotel in central Seoul, criticizing Choi’s management since he became chairman.

They claimed that under Choi’s leadership, the company’s profitability and financial health have worsened due to reckless investments and an abnormal corporate governance structure.

“Korea Zinc had almost no bank debt in 2019, with borrowings standing at just 41 billion won ($30.89 million), but it had ballooned to 1.4 trillion won by the end of June this year,” MBK Partners Vice Chairman Kim Kwang-il said. “Additionally, the 2.5 trillion won in net cash and 1.3 trillion won raised through paid-in capital increases and treasury stock sales are almost gone.”

He warned that if planned investments proceed, the company could end the year with net debt for the first time in its history.

Kim attributed the decline in Korea Zinc’s financial health to reckless investments. He criticized the board of directors for failing to intervene, allowing investments that were either unrelated to its core business or at excessively high valuations to continue under Choi’s direction.

Examples include an investment in U.S. e-waste recycling firm IGNEO Holdings LLC, a fully capital-erosive company, which was 200 times the company’s revenue, and another in private equity firm OneAsia Partners, whose CEO was indicted for stock price manipulation involving SM Entertainment Co.

Kim noted that Korea Zinc invested 99 percent of OneAsia‘s Havana No. 1 Fund, which is suspected of being used for the stock manipulation.

Kim also pointed out that the 560 billion won investment in OneAsia Partners was made without a single board approval, suggesting that it was handled solely at Choi’s discretion.

Korea Zinc responded to the press conference with strong legal warnings. It stated in a rebuttal on Thursday that it would pursue legal action for defamation over the “malicious and unverified one-sided claims.”

The company also asserted that it would remain in a net cash position at the end of this year, with a debt ratio of 36 percent and a loan dependency of 10 percent, demonstrating a stable financial structure.

Korea Zinc’s stock price surged 6.16 percent to 707,000 won on Thursday from the previous session.