As Korea Zinc is pushing a $10 trillion won U.S. smelter project with the U.S. government and discussing a third-party allotment paid-in capital increase, Young Poong, Korea Zinc's largest shareholder, and MBK Partners pushed back, saying it is for the purpose of "defending management control."
According to the investment banking (IB) industry on the 15th, Korea Zinc is expected to approve at a board meeting this morning an agenda to build a strategic minerals smelter in the southeastern United States on par with the Ulsan Onsan Smelter.
The local U.S. smelter will be pursued through a joint venture (JV) funded by Korea Zinc and the U.S. Department of Defense, the Department of Commerce, and defense companies. Of the total amount estimated at 10 trillion won, the U.S. side would shoulder about 2 trillion to 3 trillion won. It is a third-party allotment paid-in capital increase structure in which the U.S. side acquires new shares of Korea Zinc, rather than investing directly in the local smelter.
Young Poong and MBK argued that because the U.S. investment target is not the smelter JV but equity in Korea Zinc headquarters (about 10%), "if this were a normal business, they should invest directly in the project company." The argument is that it is a distorted structure in which Korea Zinc bears the 10 trillion won investment and risk while handing over "prime equity" to the U.S. side. Young Poong also warned that there is no business need to raise funds immediately by diluting existing shareholders for a large-scale project that will take years, saying such a decision violates directors' fiduciary duty to shareholders.
They also demanded disclosure of the substance of the investment funds, saying precedents for the U.S. government's "indirect investment" are rare. They noted it is hard to find cases where a U.S. government agency chose an "indirect investment" through a joint venture for an overseas private corporations. They further pointed out that building a twin plant of the Ulsan smelter in the United States could not only hollow out the domestic smelting industry but also pose a risk of leakage of core technologies.
The industry analyzes that if the paid-in capital increase goes through, Young Poong and MBK's equity (44%) would be diluted to around 40%, while Chair Choi Yoon-beom's side (including friendly stakes, 32%) would bring in the U.S. JV's 10% equity and rise to a level on par with the Young Poong–MBK alliance.
Young Poong and MBK criticized, saying, "An investment targeting headquarters equity rather than the project makes it clear the purpose is 'defending management control,' not 'business need.'" If Korea Zinc's board resolves the agenda as reported externally, Young Poong and MBK are expected to resort to legal measures such as an injunction to suspend the effect of the board resolution.