Korea Zinc under fire for possible unfair trading

On the afternoon of the 31st, Deputy Governor Hahm Yong-il of the Financial Supervisory Service held a briefing at the FSS headquarters in Yeongdeungpo-gu, Seoul, discussing the current status and future plans regarding Korea Zinc and other companies. (Yonhap)

South Korea’s Financial Supervisory Service (FSS) announced it will hold Korea Zinc and an involved brokerage firm accountable if there is evidence of unfair trading practices in the company’s recent buyback and rights issue plan. FSS Senior Deputy Governor Hahm Yong-il said during a press briefing on Thursday that if “illegal practices involving fraudulent means or schemes are verified, both the company and the related security firm will face severe repercussions.”

Hahm raised concerns over Korea Zinc’s board’s plan to repurchase and cancel treasury shares via borrowed funds, followed by a rights issue to repay the debt. He emphasized that if the board was aware of and executed these steps sequentially, critical information could have been omitted from the initial tender offer report, potentially constituting unfair trading.

In light of these allegations, the FSS conducted an on-site investigation at Mirae Asset Securities, which handled the rights issue and tender offer for Korea Zinc. The FSS indicated it would quickly forward any confirmed cases of unfair trading to investigative authorities for quick action.

The controversy arose after Korea Zinc’s securities filing revealed that Mirae Asset began due diligence for the rights issue on October 14th, 2024. Korea Zinc representatives, however, stated that there might have been an error in date entry and clarified to the FSS that Mirae Asset’s assessment was intended for refinancing high-interest loans, not for the rights issue.

Hahm said that the FSS is examining several issues regarding potential accounting irregularities, including delayed recognition of provisions linked to suspended project funds, possible undervaluation of impairment losses for high-priced domestic investment stocks received as dividends, and failure to recognize certain liabilities promptly. He mentioned that multiple facts suggest a high likelihood of accounting violations, and the FSS will soon decide on initiating a formal audit.

The FSS also addressed persistent suspicions of unfair practices throughout the Korea Zinc case, such as rumors involving collusion with unspecified parties, shareholder agreements, and unsubstantiated claims around the tender offer’s scope.