Debt-ridden Korea Zinc scraps $1.8 billion rescue plan

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Debt-ridden Korea Zinc scraps $1.8 billion rescue plan

Published: 13 Nov. 2024, 19:05 Updated: 14 Nov. 2024, 17:50

SHIN HA-NEE
[email protected]

Korea Zinc Chairman Choi Yun-beom during a press conference held in central Seoul on Wednesday [NEWS1]

Korea Zinc, the world’s leading zinc refiner, scrapped its 2.5-trillion won ($1.8 billion) plan to issue new shares following severe backlash from the financial authorities and retail investors.

The smelter was preparing to issue 3.7 million new shares in a public offering estimated to be worth 2.5 trillion won in order to repay 2.3 trillion won of debt. The Financial Supervisory Service had demanded that it revise the securities filing, submitted on Oct. 30, citing a lack of crucial information.

Externally, the proposal sparked outcry from critics who accused the company of using funds to protect its management at the expense of retail investors, as the issuance of new shares meant that the value of existing shares would decline. Korea Zinc's share price plunged right after the announcement.

Korea Zinc Chairman Choi Yun-beom will step down as a chair of its board of directors “to ensure the independence of the board,” while remaining at the operational helm as the company’s chief, in the hope of gaining support from institutional and retail investors.

“The market situation has not been reasonably foreseeable for the company or its board when the decision of the public offering was made, and I humbly and sincerely apologize for the confusion and concerns it has caused,” Choi said during a news conference Wednesday afternoon in central Seoul after the company’s board of directors withdrew the proposal.

“I will resign as a chairperson of the board as soon as possible and have an external board member hold the position,” Choi said, adding, “We will become more attentive to what the market has to say and serve the interest of our shareholders.”

The withdrawal was widely expected, as Korea Zinc had already issued a public apology for the share issuance proposal on conference calls a day earlier, saying “We failed to take into account some factors, such as the change in the market situation, investors’ concerns and a demand for a revision by the financial authorities.”

The withdrawal of the plan and Choi's resignation, however, have done little to alleviate growing skepticism over the company's future under growing regulatory scrutiny and mounting debt. Korea Zinc briefly rose up to 6.39 percent Wednesday morning but fell rapidly, once again, in the afternoon, following the cancellation announcement. Shares closed at 981,000 won, down 14.1 percent from the previous session.

Korea Zinc has been embroiled in a high-profile management dispute since September after Young Poong, its largest shareholder, teamed up with private equity firm MBK Partners to secure a controlling stake in the company through a public tender.

Following the closure of tender offers from both sides and the additional acquisition of shares, Young Poong and MBK Partners had secured 39.83 percent of Korea Zinc as of Monday, while Korea Zinc was estimated to fall behind by some five percentage points.

The management dispute is now likely to move to an extraordinary general shareholder meeting, during which Korea Zinc and Young Poong will compete to secure votes for board seats.

“Those who hold the casting votes for Korea Zinc are institutions, foreigners and retail investors,” Choi said during the news conference, during which he also rolled out a series of plans to improve Korea Zinc’s governance structure and strengthen the integrity of its board's operation, including appointing a foreigner as an independent director to bolster communications with international investors.

Korea Zinc Chief Technical Officer and Vice Chairman Lee Je-joong, center, chants along with key engineers of the zinc smelter, during a press conference held at Korea Zinc's headquarters in central Seoul on Sept. 24. [NEWS1]

Young Poong, a nonferrous metal supplier, was co-founded by the late Chang Byung-hee and Choi Ki-ho in 1949. Korea Zinc, its sister company, was founded in 1974. The Chang family has been at the helm of Young Poong since, while the Choi family has handled Korea Zinc.

The management dispute emerged after the incumbent Chairman Choi took office in 2022 and began actively seeking partnerships with third parties, which consequently lowered Young Poong’s stake in Korea Zinc.

“We are disappointed by the belated cancellation of the plan,” Young Poong and MBK Partners said in a statement following the withdrawal announcement.

“MBK Partners and Young Poong aim to appoint new board members by holding an extraordinary shareholder meeting, […] in order to promptly establish a new and transparent governance structure.”

BY SHIN HA-NEE [[email protected]]