Last September, the sudden declaration of a public takeover bid by Youngpoong and MBK Partners initiated a management dispute at Korea Zinc, which has lasted for nearly four months. The two sides will hold their first vote on the 23rd at an extraordinary general meeting of shareholders to seize control of the board. With both parties holding similar equity, foreign and institutional shareholders will ultimately decide the direction of management at Korea Zinc, the world’s number one nonferrous metal corporation. Here are the main issues on the agenda for the extraordinary meeting.
The direction of the Korea Zinc management dispute is expected to be determined by foreign shareholders, who are estimated to hold about 13% of the total equity. One of the indicators used by foreign investors when reviewing the general meeting agenda is the results of the ESG (Environmental, Social, Governance) assessment.
Youngpoong and MBK claim they have begun to secure management control to improve the governance of Korea Zinc. They argue that under Chairman Choi Yun-beom’s leadership, investments unrelated to the core business have continued, while Korea Zinc rebuts that these are normal investments aimed at pursuing new business ventures. Although Youngpoong and MBK assert that there are issues with Korea Zinc's governance, evaluations by domestic and international institutions indicate that Korea Zinc's governance is at a satisfactory level. In particular, the current management has implemented interim dividends and retired treasury shares, which has garnered high scores in the governance sector.
According to the Korea ESG Research Institute, a subsidiary of the Daishin Economic Research Institute, Korea Zinc's ESG comprehensive assessment grade was raised to A for both the first and second halves of 2023, up from A+ in the first half of last year. Korea Zinc ranked first among 47 companies in the domestic steel and metal industry and is within the top 2.3% among 1,092 listed companies surveyed. The Korea ESG Research Institute also gave Korea Zinc an A in the second half of last year.
Another ESG assessment agency and proxy advisory firm, Sustainalytics, downgraded Korea Zinc's ESG comprehensive assessment grade from AA for both the first and second halves of last year to BB, A for the corresponding periods in 2023. Korea Zinc was ranked second among 50 corporations with assets exceeding 2 trillion won in the first half of last year and first in the manufacturing sector. The Korea ESG Standard Institute raised Korea Zinc's ESG comprehensive assessment grade from B in 2023 to B+ in 2024.
Assessment agencies have given high marks for the improvement of Korea Zinc's governance. The Korea ESG Research Institute raised Korea Zinc's governance grade from B for both the first and second halves of 2023 to A last year. Scores improved in areas such as the selection of compliance support personnel and increased diversity on the board of directors. In terms of internal control and management transparency, it achieved the highest rankings in the steel and metal industry.
Sustainalytics has maintained an A governance rating for Korea Zinc for four consecutive years since 2021. Sustainalytics has increased its scores in areas such as the attendance rate of outside directors, appropriateness of board composition, separation of the board chair and CEO, and operation of the related party transaction committee. The Korea ESG Standard Institute upgraded Korea Zinc's governance grade from C in 2023 to B+ last year.
Glass Lewis, a U.S. proxy advisory firm, emphasizes the separation of the board chair and the Chief Executive Officer (CEO) when evaluating board independence. After Chairman Choi Yun-beom took office as CEO in 2021, a sustainability management committee was established and ESG management was fully implemented at Korea Zinc. Choi resigned as CEO of Korea Zinc in March last year but continued as board chair, later stating in November that he would also step down from the chair position to strengthen board independence. He proposed an amendment to the articles of incorporation to make a non-executive director serve as the board chair.
Korea Zinc is also receiving positive evaluations in the areas of environmental responsibility and social impact. In the second half of last year, the Korea ESG Research Institute assessed Korea Zinc as the second in the environmental sector within the steel and metal industry. The Korea ESG Society noted last month that Korea Zinc is transforming from a high energy-consuming company into an environmentally friendly company leading resource recycling efforts. Korea Zinc is accelerating its transition to sustainable energy and establishment of a recycling ecosystem for waste resources through a new business triad drive that includes renewable energy, green hydrogen, and materials for secondary batteries.
Youngpoong, which is competing with MBK for control of Korea Zinc, saw its ESG rating drop due to issues like environmental pollution and industrial accidents. Youngpoong received a B rating from Sustainalytics in 2023, down from a C rating the previous year. The assessment by the Korea ESG Standard Institute also lowered its rating from B+ to B. The Korea ESG Standard Institute downgraded its environmental (E) and social (S) ratings from B+ to B.
At Youngpoong's Seokpo Refinery in North Gyeongsang Province, incidents including wastewater discharge and industrial accidents have occurred. The Supreme Court confirmed an administrative action on a two-month suspension of operations for violations of the Water Environment Conservation Act against Youngpoong last November. The company also received a 28.1 billion won penalty surcharge in 2021 for discharging cadmium-contaminated water into the Nakdong River. Youngpoong’s CEO Park Young-min and Seokpo Refinery CEO Bae Sang-yun were charged and detained for violations of the Serious Accidents Punishment Act and the Occupational Safety and Health Act due to a series of worker fatalities.
Korea Zinc has enhanced its shareholder returns in recent years by increasing dividends and retiring shares. Shareholder returns are one of the key indicators used to evaluate the advancement of corporate governance.
Korea Zinc's shareholder return rate (the sum of dividends and the amount spent on share buybacks and retirements divided by net income) reached a record high of 76.3% in 2023, increasing from 43.8% in 2021 and 50.9% in 2022. Korea Zinc paid a total of 198.6 billion won in interim dividends (10,000 won per share) and 104 billion won in settlement dividends (5,000 won per share) in 2023, and acquired and retired treasury shares worth 100 billion won. This means that the company generated 533.2 billion won in net profit and returned 402.6 billion won to its shareholders.
In 2023, Korea Zinc's shareholder return rate (76.3%) is more than double the average total shareholder return rate of 28% of domestic listed companies from 2013 to 2022, as compiled by KB Securities, and also surpasses the average total shareholder return rate of 68% in developed countries (excluding the U.S.). Yoon Tae-jun, the director of the small shareholder movement platform Act, evaluated that Korea Zinc's shareholder return rate is among the top five levels among large enterprises when excluding financial companies and holding companies. Although last year's annual performance and settlement dividends for Korea Zinc have not yet been announced, there are estimates that if the 2023 level of settlement dividends is applied, the shareholder return rate for Korea Zinc last year would exceed 100%.
Korea Zinc introduced an interim dividend for 2023, marking the second consecutive year of interim dividends since last year. At the extraordinary general meeting of shareholders on the 23rd, it plans to revise the articles of incorporation to change the dividend payment frequency from the current biannual dividend to quarterly dividends paid four times a year. A Korea Zinc official stated, “Transitioning to quarterly dividend payments every three months will allow shareholders to receive dividends more reliably and predictably.”
There is also interest in how the expressed concerns from some in the U.S. Congress regarding MBK's attempt to acquire Korea Zinc will affect the voting by foreign shareholders. Representative Eric Swalwell, in his capacity as co-chair of the congressional caucus known as the 'Critical Minerals Caucus,' sent a letter last month to U.S. Deputy Secretary of State Jose Fernandez stating that, “If MBK gains control of Korea Zinc, technology could be transferred to China, potentially dismantling a significant global player (Korea Zinc) in the joint efforts of the U.S. and South Korea to protect and expand the supply chain of critical minerals from China.”
Swalwell referenced MBK's investment history in China, stating, “There is a possibility that entities based in China or funded by China may engage in various transactions after MBK's acquisition of Korea Zinc.”