FSS blocks Korea Zinc's share issuance plan

The Financial Supervisory Service (FSS) put the brakes on Korea Zinc's plan to issue new shares in an attempt to fend off a hostile takeover bid.

Financial Supervisory Service Senior Deputy Governor Hahm Yong-il speaks during an emergency press briefing in western Seoul. [NEWS1]

The Financial Supervisory Service (FSS) put the brakes on Korea Zinc's plan to issue new shares in an attempt to fend off a hostile takeover bid.

The regulator demanded that Korea Zinc submit a revised share sale plan within the next three months citing an unidentified factor of the current plan that could harm the interests of investors, a company spokesperson said over the phone.

"Korea Zinc will make an utmost effort to resolve the concerns and misunderstandings of investors and the market after thoroughly looking into the regulator's correction requests," the spokesperson said.

Last Wednesday, Korea Zinc, the world's largest refined zinc smelter, announced a plan to issue 3,732,650 shares, equivalent to about 18 percent of its outstanding shares, to raise 2.5 trillion won (US$1.8 billion) at about 670,000 won apiece, with the subscription period scheduled for Dec. 3-4.

The company said it would allocate 20 percent of the new shares for employee subscription on Dec. 3.

The move was widely seen as part of Korea Zinc's efforts to secure more treasury stocks with voting rights as part of its ongoing takeover battle with Young Poong and MBK Partners.

Currently, the Young Poong camp owns a 38.47 percent stake in Korea Zinc following a tender offer. Korea Zinc Chairman Choi Yun-beom and related parties collectively hold 35.4 percent following a buyback.

The short timeline between Korea Zinc's buyback, which ended Oct. 23, and the issuance announcements raised concerns that the smelter might have engaged in unfair market practices.

The actions of Korea Zinc, had it planned to pay back loans extended for the buyback with the proceeds from the sale of shares, would constitute unfair trading, according to the regulator, since the between the company's buyback price of 890,000 won and its estimated share issuance price of 670,000 won would disadvantage shareholders who had not sold shares during the buyback period.

Korea Zinc fell 2.2 percent to 1,230,000 won on Wednesday, far underperforming the broader Kospi's 0.5 percent loss.

Yonhap