As Korea Zinc decided to hand over about 10% of the company's equity to a joint venture (JV) to be set up with the U.S. government as it pushes ahead with the U.S. Smelter construction, a court ruling on the injunction request filed by Young Poong and MBK Partners to ban the new share issuance could come as early as on the 22nd.
According to the industry on the 21st, Korea Zinc will invest about 11 trillion won with the U.S. government and investors to build an integrated nonferrous metal smelter in Tennessee, establish the "Crucible JV," and transfer 10.59% of Korea Zinc's equity to the U.S. government through a third-party allotment paid-in capital increase.
In the Crucible JV, the U.S. Department of War and the Department of Commerce will participate as the largest shareholder (40%), and Korea Zinc will participate with 10% equity. Because the remaining 50% will be taken by strategic investors in the United States, analysts say the structure allows the U.S. side to exercise substantial influence.
Given the U.S. government's active push to build smelters to establish a supply chain for key minerals outside China, the JV's 10% equity is likely to become friendly equity for the current management led by Chair Choi Yoon-beom.
This smelter construction project moved forward as Chair Choi, who accompanied the Korea-U.S. summit as part of the business delegation in Aug., met with high-level officials including U.S. Commerce Minister Howard Lutnick.
Minister Lutnick, who visited Korea while accompanying the Korea-U.S. summit in Gyeongju in late Oct., reportedly met Chair Choi again, asked for "as quickly as possible, as much volume as possible," and pledged administrative and financial support for the smelter construction.
If Korea Zinc pays in the proceeds of the paid-in capital increase on the 26th and issues 2,209,716 new shares, the MBK–Young Poong side's equity will be 43.42% on a voting shares basis, and Chair Choi's side will rise to 18.76%.
If you add National Pension Service (5.08%) to Hanwha (8.15%), the new JV (11.21%), and LG CHEM (1.99%)—all categorized as friendly equity for Chair Choi's side—Chair Choi's side will total 45.53%, surpassing the MBK–Young Poong side's equity (43.42%).
It had been difficult to classify the National Pension Service as friendly equity for Chair Choi, but it has recently taken a critical stance on MBK's acquisitions, including the "Homeplus Co. situation," and sided with Chair Choi at the shareholders' meeting in Mar. this year.
For MBK–Young Poong, which is aiming to gain additional board seats at the shareholders' meeting in Mar. next year, the paid-in capital increase to the JV would flip what was initially considered a favorable vote landscape.
Korea Zinc's board currently consists of 11 members on Chair Choi's side and 4 on the MBK–Young Poong side. This stems from the MBK–Young Poong side having brought in three new directors at the shareholders' meeting in Mar. this year.
At the last shareholders' meeting, Korea Zinc increased the maximum number of directors to 19 to prevent the MBK–Young Poong side from taking control of the board. Four directors are currently suspended from duty, so 15 will attend the shareholders' meeting. As the terms of some of Chair Choi's directors expire at next year's meeting and new directors must be appointed, the general outlook was that the board would likely be reshaped to about 9–6 or 8–7 thereafter.
However, if the equity (11.21% on a voting rights basis) transferred to the JV through this paid-in capital increase is used as friendly equity for Chair Choi's side, the gap in board seats may not narrow as much as the MBK–Young Poong side expects.
At the hearing on the 19th at the Seoul Central District Court on the injunction request to ban Korea Zinc's third-party allotment paid-in capital increase, the court heard both sides and asked Korea Zinc to submit by the 21st explanatory materials supporting the claim that the U.S. government wanted equity in the smelter.
Since the payment date for the paid-in capital increase has been set for the 26th, the intent is to decide before then. The legal community believes the court is likely to rule on the injunction request around the 22nd.
If the court accepts Korea Zinc's explanation and dismisses the injunction, the U.S. Smelter project is expected to gain rapid momentum. Korea Zinc plans to begin site preparation next year and start phased commercial operation in 2029.
At the same time, Chair Choi's side would likely benefit by holding at least one more board seat against the MBK–Young Poong push to enter the board at the shareholders' meeting in Mar. next year, maintaining an advantageous position in the management control dispute.
If the court grants the injunction, Chair Choi's defensive strategy will be disrupted. Because the record date for the Mar. shareholders' meeting is the 31st of this month, if the payment for the paid-in capital increase does not occur on the 26th and the JV's establishment is pushed to next year, the new shares allotted to the JV will not be effective for this meeting.
If that happens, the MBK–Young Poong side and Chair Choi's side would be estimated to diverge significantly to about 48.9% versus 32.9%–38.6% on a voting shares basis. The board composition could narrow from the current 11 on Chair Choi's side versus 4 on the MBK–Young Poong side to about 9–6 or 8–7.
Meanwhile, Korea Zinc announced on the 15th that it will establish a JV with the U.S. Department of Commerce, the Department of War (the former Ministry of National Defense), and defense strategy companies to build a nonferrous metal smelter in Clarksville, Tennessee. As one financing method, Korea Zinc decided to make a third-party allotment paid-in capital increase to the JV, in which the U.S. Department of War will be the largest shareholder (40.1%), transferring about 10.59% of Korea Zinc's equity. In response, the Young Poong side, which is in a management control dispute with Korea Zinc, filed an "injunction to ban new share issuance" with the court on the 16th.