It has been confirmed that Korea Zinc reported Young Poong and Young Poong's affiliate YPC to the Fair Trade Commission on suspicion of violating the Monopoly Regulation and Fair Trade Act. The reason is that they created a new circular shareholding link through a domestic affiliate (YPC).
Earlier, Young Poong and MBK Partners also reported to the Fair Trade Commission in Jan. that Korea Zinc created a new circular shareholding structure by using overseas affiliates, accusing Chair Choi Yun-beom of Korea Zinc and affiliate executives of violating the fair trade law. As Korea Zinc responded with a "counter report," the commission now has to examine the circular shareholding structures of both sides.
According to the business community on the 27th, Korea Zinc recently submitted a report to the commission requesting an investigation, claiming that Young Poong and YPC violated the fair trade law. The report included the request: "Please conduct a thorough investigation, as there are suspicions that, to thwart Korea Zinc's lawful defense of management control and expand excessive dominance, they created a new circular shareholding link through the domestic company YPC, which is prohibited by the fair trade law."
According to the report, on Mar. 7 this year, Young Poong established YPC as a wholly owned subsidiary and then transferred 5,262,450 shares of Korea Zinc (equity stake 25.42%) it held by way of an in-kind contribution. This completed a circular shareholding structure of "Young Poong→YPC→Korea Zinc→Sun Metal Holdings (SMH; Korea Zinc overseas subsidiary)→Young Poong." Korea Zinc argued that these actions by Young Poong "constitute a violation of Article 22 of the fair trade law."
Article 22 of the fair trade law prohibits domestic companies belonging to business groups subject to restrictions on mutual investment (large business groups) from forming circular shareholdings with other domestic affiliates. While investments in overseas affiliates are not regulated, investments "between domestic companies," as in this case, are clearly prohibited. Korea Zinc also argued that, after limiting Young Poong's voting rights in Korea Zinc under the Commercial Act's cross-shareholding regulations, they committed an illegal act by forming a circular shareholding through the method of transferring Korea Zinc shares to YPC.
On Mar. 12, immediately after Young Poong transferred its Korea Zinc equity to YPC, it acquired an additional 10 shares of Korea Zinc, thereby forming another circular shareholding link of "Young Poong→Korea Zinc→SMH→Young Poong." YPC is 100% owned by Young Poong, and Kim Ki-ho, CEO of Young Poong, also serves as CEO of YPC.
YPC's business purpose is defined as "acquiring and owning shares of Korea Zinc to control and manage Korea Zinc's business." Korea Zinc argued that Young Poong sought to strengthen its control over Korea Zinc in the name of its subsidiary.
Previously, in Jan., Young Poong also reported to the commission, saying "Korea Zinc engaged in illegal circular shareholding." Sun Metal Corporation (SMC), an Australian corporation 100% owned by Korea Zinc, acquired a 10.33% equity stake in Young Poong held by Chair Choi's family and others for 57.5 billion won in Jan. As a result, a circular shareholding link of "Korea Zinc→SMC→Young Poong→Korea Zinc" was formed.
Subsequently, in May, SMC made an in-kind dividends of its Young Poong equity to SMH, another Australian subsidiary of Korea Zinc, creating a circular shareholding structure of "Korea Zinc→SMH→Young Poong→Korea Zinc."
Young Poong and MBK said, "SMC's acquisition of Young Poong shares, as a company 100% controlled by Korea Zinc, is an unlawful act that evaded the ban on mutual investment among affiliates within a business group subject to restrictions on mutual investment," adding, "SMC used borrowing fund to acquire Young Poong shares in its own name despite having no incentive to make the acquisition."