This article was displayed on the ChosunBiz MoneyMove (MM) site at 5:38 p.m. on Dec. 19, 2025.
Controversy over Korea Zinc's construction of a U.S. Smelter and a third-party allocation paid-in capital increase against the U.S. government has ended up in court. Young Poong–MBK Partners, which is in a dispute with Chairman Choi Yoon-beom's side over control of Korea Zinc, filed for an injunction to prohibit the issuance of new shares.
At a hearing held on the 19th, the two sides clashed over the necessity and legitimacy of issuing new shares. Korea Zinc said the investment was driven by the needs of the U.S. government and emphasized that the U.S. government proposed it first. It also argued that the reason the payment for the new share subscription must be made before the shareholder registry is closed is due to a request from the U.S. government. Young Poong countered that Korea Zinc accepted unfavorable terms and chose a third-party allocation paid-in capital increase to defend Chairman Choi's control as an individual.
◇ Of 11 trillion, around 10 trillion is the U.S.… Young Poong says the substance is bringing in a white knight for Choi
According to the investment banking industry and according to legal sources, the Civil Agreement Division 50 of the Seoul Central District Court (Presiding Senior Judge Kim Sang-hoon) held a hearing in the morning on an injunction sought by Young Poong–MBK Partners to prohibit the issuance of new shares by Korea Zinc.
Korea Zinc held a board meeting on the 15th and approved a plan to build a large-scale smelter in Clarksville, Tennessee. The total project expense is 10.948 trillion won.
To that end, Korea Zinc, the U.S. government, and local corporations agreed to establish the Crucible joint venture (Crucible JV) worth 2.85 trillion won. To avoid cross-shareholding restrictions under the Commercial Act, Korea Zinc will hold only up to 9.9% equity in the JV. The U.S. government will invest 2 trillion won to secure 40.1% equity in the JV.
Korea Zinc will obtain funds from the JV by conducting a third-party allocation paid-in capital increase targeting the JV. Each side will come to hold equity in the other.
The JV will raise the remaining investment of about 8 trillion won through borrowings and capital increases. As a result, the U.S. government will indirectly hold about 10% equity in Korea Zinc through the JV.
The fiercest point of contention is whether this third-party allocation paid-in capital increase is to secure friendly equity to defend Chairman Choi Yoon-beom's control as an individual, or an investment driven by managerial necessity.
Young Poong–MBK argued that while Korea Zinc is packaging this new share issuance as being pursued from a business perspective, the primary purpose in substance is Chairman Choi's defense of control. In other words, Choi brought in the U.S. government as a white knight amid the control dispute with Young Poong–MBK.
An attorney for Young Poong said at the hearing that "it's common sense for the U.S. government to lend or support funds directly to a project company; this investment structure is unusual and distorted," adding, "if you consider who needs a white knight in the current situation (Chairman Choi), the purpose of this new share issuance is clear."
Korea Zinc countered that "this equity investment by the U.S. government was initially at the request of the U.S. government." It said the parties agreed not to end with a one-off investment but to become shareholders and maintain a long-term business cooperation.
◇ The plant plan isn't finalized yet, so why pay already?… Korea Zinc says the U.S. side wants to appoint one director next year
The two sides are first clashing over whether "the U.S. government really proposed this deal first."
Korea Zinc's attorney plans to submit to the court an equity term sheet (a document summarizing key transaction terms) as evidence that it received a proposal from the U.S. government. Korea Zinc argues that because the term sheet contains all the details of the proposed equity investment terms and the responses, including the course of negotiations, it can prove who proposed first and what conclusions were reached.
In response, an attorney for Young Poong said, "They say they will submit the term sheet, so we will have to see whether it contains details on a third-party allocation paid-in capital increase, but we also need to check whether Chairman Choi verbally requested a third-party allocation paid-in capital increase from the U.S. government before the term sheet was drafted." Young Poong's basic position is that the U.S. government could not have requested a third-party allocation paid-in capital increase first.
Korea Zinc and Young Poong–MBK are also at odds over the urgency of setting the payment date for the new share subscription on the 26th.
Young Poong stressed, "Korea Zinc is rushing the new share issuance even before finalizing the smelter construction plan, and we cannot accept a legitimate reason why the subscription payment must be made before Dec. 31 of this year (the record date for closing the shareholder registry)." It argued that Chairman Choi's side is pulling a "trick" by hastily setting the payment date to bring in the U.S. government as a friendly shareholder at the regular shareholders meeting in March next year.
Korea Zinc acknowledged that it set the payment date as the 26th because it must finalize the U.S. government as a shareholder before the shareholder registry is closed. However, Korea Zinc said this too was at the request of the U.S. government.
Korea Zinc's attorney said, "Korea Zinc said it would complete the plant by 2029 and begin trial operations in 2030, but the U.S. government said it would fully support all permits and approvals required for plant construction and asked for earlier completion, which sped up the overall schedule by a year."
The attorney added, "The U.S. government conveyed the position that 'to do that, money must go in right away, so an immediate director appointment right is needed,' and in the end it was agreed that one director would be appointed at the regular shareholders meetings next year and the following year (2027)."
It said the U.S. side argued that investing 10 trillion won out of 11 trillion won and yet not being able to appoint even one director at next year's regular shareholders meeting and pushing it to 2027 would be unreasonable.
In response, an attorney for Young Poong said, "In March next year, hold the shareholders meeting according to the current equity structure, and once the board is formed, discuss it again at the 2027 shareholders meeting," adding, "the reason they are rushing as if frying beans over a lightning fire is that if Young Poong's directors are additionally appointed at the March shareholders meeting, it will become difficult for them (Chairman Choi's side) to carry out a third-party allocation paid-in capital increase at will."
The attorney argued, "If they had taken time and proceeded slowly, Korea Zinc could have cooperated with the U.S. government on much more favorable terms, but because the primary goal was Chairman Choi's personal defense of control, they rushed and took on significant risk."
In this deal, Korea Zinc agreed to provide a joint guarantee for a $2.35 billion (about 3.47 trillion won) loan for the local project company. Young Poong–MBK argues this shows Korea Zinc accepted unfavorable terms.
◇ Was a third-party allocation paid-in capital increase really necessary?… A decision could come as soon as the 22nd
Whether Korea Zinc had to do a third-party allocation paid-in capital increase is also key. Article 418, Paragraph 2 of the Commercial Act stipulates that a third-party allocation paid-in capital increase is allowed only when there is a managerial purpose, such as the introduction of new technology or improvement of the financial structure.
An attorney for Young Poong said, "There is little demand for funds at this time, and the same goes for next year, so it is questionable whether there is a need to suddenly conduct a paid-in capital increase in December," adding, "even if the payment date is delayed by only three business days, an unnecessary outflow of 44.2 billion won in dividends can be prevented. Does this mean they are willing to throw away 44.2 billion won to change the shareholder composition to defend Chairman Choi's control?"
The attorney added, "Chairman Choi's side talks as if the U.S. project itself will fall through if a third-party allocation is blocked, but a rights offering is possible and investors are lining up to buy corporate bonds, so there is no reason to push ahead with a third-party allocation paid-in capital increase while accepting equity dilution."
Korea Zinc counters that a rights offering has its limits. A Korea Zinc attorney said, "It makes no sense to say we will raise 11 trillion won through a rights offering."
The attorney continued, "When corporations conduct a third-party allocation capital increase, the most important factor is a sort of 'non-substitutability.' By bringing in the U.S. government as a shareholder, Korea Zinc can receive full support for plant construction permits and raw material supply," and asked, "who could replace that role?"
Both sides plan to submit briefs and evidence to the court by the 21st, the scheduled close of the hearing. A conclusion is expected as soon as the 22nd or on the 23rd.