Young Poong and MBK Partners demanded that the audit committee of Korea Zinc conduct an independent investigation into the One Asia Partners fund investments and the overall flow of funds at Cheongho Comnet.
Young Poong and MBK said in a statement on the 5th that "with the court's successive orders to submit documents, a special tax audit by the National Tax Service, and even a review by the financial authorities, the audit committee can no longer leave the matter solely to external procedures," adding, "As an independent oversight body that must monitor the execution of duties by management on behalf of all shareholders, the audit committee must launch an investigation immediately."
In May, the Seoul Central District Court ordered Korea Zinc to submit internal documents related to One Asia Partners' "Korea Growth No. 1" and "Arbitrage No. 1" funds, as well as materials related to the acquisition of SWNC corporate bonds worth 20 billion won.
Young Poong and MBK view the transactions related to the One Asia Partners funds and Cheongho Comnet and SWNC as being connected in a single flow of funds. One Asia Partners is a private equity manager founded by Ji Chang-bae, an elementary and middle school classmate of Chair Choi Yun-beom. According to Young Poong and MBK, Cheongho Comnet was also a company that Ji effectively owned and controlled.
Young Poong and MBK say Korea Zinc participated in Korea Growth No. 1 and Arbitrage No. 1 at the level of a largest limited partner.
They also note that the chair acquired Cheongho Comnet equity through Yerigo No. 1, a personal investment association, and that Korea Zinc committed capital to Korea Growth No. 1. Young Poong and MBK claim that part of that fund's money then flowed to Cheongho Comnet.
The scope of the investigation request also included the SWNC corporate bond transaction. Korea Zinc acquired 20 billion won in corporate bonds issued by SWNC. Young Poong and MBK explain that these funds were used as financing for SWNC's acquisition of Sewon, a Cheongho Comnet subsidiary. They further pointed out that the bonds were redeemed in the process of injecting Arbitrage No. 1 fund money into SWNC's paid-in capital increase.
In this situation, Young Poong and MBK stressed that no independent probe at the audit committee level or briefing for shareholders has been conducted. Accordingly, Young Poong and MBK called for an investigation into the background of the One Asia fund subscription and capital commitment decisions, internal investment reviews and approval procedures, whether the chair was involved, reports on fund operations and post-management records. They also sought to examine the consolidation with transactions related to Cheongho Comnet and SWNC, how losses occurred, and where responsibility lies.
Young Poong and MBK said, "The audit committee is an independent oversight body that must monitor the execution of duties by the board and management for all shareholders," adding, "If the audit committee remains silent while the court, the National Tax Service, and the financial authorities are all scrutinizing the flows of money related to the One Asia fund investments, that would be a denial of its own reason for being."
They continued, "Korea Zinc is not a company that exists for the private purposes of certain executives and interested parties, but the joint asset of all shareholders," adding, "Even now, the audit committee should launch an independent and substantive investigation into the overall One Asia fund investments and disclose the scope, procedures, and results to shareholders transparently."
Korea Zinc later countered that the claims by Young Poong and MBK were unconvincing. In an afternoon statement, Korea Zinc said, "The requirement of 'holding at least 0.1% for six months or at least 1%' is a minimum reasonable mechanism to prevent indiscriminate abuse of nomination rights and to ensure effective vetting of candidates," adding, "The eligibility requirement is by no means something that only an individual shareholder must meet alone; several minority shareholders who share the same purpose can combine their equity and still be fully guaranteed the opportunity to nominate candidates."
It added that the alternative proposed by Young Poong and MBK "may not directly name a specific person, but it seeks to design and run the entire candidate selection process, which in substance is no different from seeking to exert influence over the candidate appointment process," noting, "Given that this argument comes from Young Poong and MBK, who are attempting a hostile M&A, the market will inevitably harbor doubts about the sincerity of its background and purpose."