This article was displayed on the ChosunBiz RM Report site at 10:42 a.m. on June 13, 2025.
The Fair Trade Commission has completed a field investigation of Korea Zinc, which is under suspicion of circular investment. It is currently reviewing whether there has been a violation of the Fair Trade Act based on the materials secured. Chairperson Han Gi-jeong of the Fair Trade Commission noted that this matter will be closely examined, though some observers believe it may conclude with a ruling of illegality; however, the commission is wary of broad interpretations. Legal experts indicate that since Korea Zinc has utilized methods to evade regulatory actions, the commission's sanctions may not proceed smoothly.
According to competition authorities on the 13th, the Fair Trade Commission recently completed a field investigation of Korea Zinc's headquarters in Jongno District, Seoul, which began on May 26. Currently, it is examining the process by which Korea Zinc's subsidiary, Sun Metal Corporation (SMC), acquired shares of Young Poong. Young Poong is the parent company of Korea Zinc.
The Fair Trade Commission emphasizes that the field investigation into Korea Zinc was based on a report from a third party, not a self-initiated inquiry. This means they are merely confirming the legality based on the reports received. A Fair Trade Commission official explained, "A self-initiated inquiry is conducted with some level of suspicion, but in the case of a report, we must first verify the content of the report."
The investigation into the circular investment allegations against Korea Zinc was initiated by a report from MBK Partners, a private equity fund operator seeking to take control of the company. The governance structure of Korea Zinc was 'Young Poong → Korea Zinc → Sun Metal Holdings → Sun Metal Corporation (SMC).'
Last year, when Young Poong, the parent company, sought to wrest control from the current management of Korea Zinc in partnership with MBK Partners, Chairman Choi Yoon-beom of Korea Zinc and others transferred their shares of Young Poong to SMC. If both companies hold equity exceeding 10% of each other, they cannot exercise voting rights against each other, and Korea Zinc exploited this to deprive Young Poong of voting rights. At that time, Young Poong held 25.42% of Korea Zinc's shares.
The issue lies in the fact that the company's governance structure has changed to a circular investment form of 'Young Poong → Korea Zinc → Sun Metal Holdings → SMC → Young Poong.' Under the Fair Trade Act, corporate conglomerates like Young Poong are prohibited from creating new circular investment links. This context frames MBK Partners' report to the Fair Trade Commission regarding Korea Zinc.
Han Gi-jeong, chairperson of the Fair Trade Commission, stated at a press briefing for reporters in February, "We will closely examine whether there has been a violation of the Fair Trade Act." He added that they would review the legality through processes such as fact-finding, data requests, and gathering opinions, and mentioned, "If additional issues are found, we will consider institutional improvements."
While it is true that Korea Zinc has created a circular investment structure, there is controversy regarding whether it is illegal. The Fair Trade Act limits the prohibition of circular investments to domestic affiliates only. The SMC utilized by Korea Zinc when creating this circular investment structure is a subsidiary based in Australia.
The Fair Trade Act stipulates that actions aimed at circumventing regulations are prohibited. According to this regulation, one must not acquire or possess shares of affiliated companies by using someone else's name.
While there is caution against broad interpretations, the Fair Trade Commission believes that illegal acts should be prohibited for all companies, regardless of whether they are domestic or international. A competition law expert noted, "The general view in the industry is that the Fair Trade Commission will find it difficult to sanction Korea Zinc under the circular investment provisions; however, circumventing the law refers to actions that indirectly evade it, and there is a possibility of punishment for that."
In response, Korea Zinc stated, "The purchase of shares in Young Poong was a necessary measure from the SMC level to fend off hostile mergers and acquisitions (M&A) and ensure the sustainability of our business," describing it as "a rational financial and business judgment made after a board resolution."
Meanwhile, in March, Kim Nam-geun, a member of the Democratic Party of Korea, proposed an amendment to the Fair Trade Act to legislatively prohibit the formation of circular investment structures using overseas affiliates. However, the proposal has not been processed and is pending in the National Assembly due to the National Policy Committee not convening during the presidential election phase.