Korea Zinc under FSS microscope for alleged unfairness with latest public offering

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Korea Zinc under FSS microscope for alleged unfairness with latest public offering

Published: 31 Oct. 2024, 18:27

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

Financial Supervisory Service Senior Deputy Governor Hahm Yong-il speaks during an emergency press briefing held in western Seoul on Thursday. [NEWS1]

Korea Zinc is facing mounting pressure from financial authorities and investors over its latest decision to pursue a 2.5 trillion won ($1.8 billion) public offering, widely interpreted as a move aimed at further solidifying the control of the current management.

The Financial Supervisory Service (FSS) promptly stepped in on Thursday, launching an on-site investigation into Mirae Asset Securities — which handled Korea Zinc’s previous tender offer as well as the new share issuance — in addition to the ongoing inspection of potential unfair practices during the control dispute over the zinc smelter.

The financial regulator warned that it will take strict measures if any illegalities are found.

“The FSS is fully aware of the market’s concerns [regarding Korea Zinc’s new share issuance], and will closely look into whether its securities filing abided by its reporting duties, in conjunction with the ongoing investigation over potential unfair trade practices,” said FSS Senior Deputy Governor Hahm Yong-il during an emergency press briefing held in western Seoul on Thursday.

“We will closely look into the case with all of our capabilities to ensure that the market and investors would be able to make reasonable decisions,” said the deputy director, and promised to “hold not only the company but also the securities firm involved thoroughly accountable if any illegal activities are confirmed.”

Korea Zinc said on Wednesday that it will issue 3.7 million shares at a tentative price of 670,000 won per share to raise about 2.5 trillion won, and allot 20 percent of the newly issued shares for subscriptions by its employees. The majority of funds raised will be used to repay 2.3 trillion won in debt, according to its regulatory filing.

The decision drove its share price plunging in the market by 29.94 percent on Wednesday and 7.68 percent on Thursday, as issuing new shares means that the value of existing shares would decline. The offering price of 670,000 won apiece, though subject to change, is also significantly lower than its current share price, which reached 1,543,000 won on Tuesday before closing at 998,000 won on Thursday.

Korea Zinc launched a tender offer in September to acquire up to 20 percent of its shares to defend against a hostile takeover attempt by MBK Partners and Young Poong, its largest shareholder, consequently securing an additional 11.26 percent stake.

New shares reserved for its employees can be also considered supportive of the current management’s control.

If Korea Zinc had a plan to issue new shares by the time it launched the tender offer and utilize the funds raised through the public offering to repay the debt used to secure treasury stock, not informing its shareholders of the plan in its regulatory filing for the tender offer may constitute an unfair business practice as well as a false report.

“This is a critical matter — from the perspective of existing shareholders of Korea Zinc, by the time that the tender offer was launched, they made a decision whether to accept the offer based on the plans put forward by the company,” said Hahm.

“Then came an announcement of a new share; if the board members of Korea Zinc have been aware of the plan, questions would inevitably arise regarding potential unfair trading practices and false reporting.”

Mirae Asset can also be subjected to a penalty if it was aware of the company’s plan, suggested Ham, but added that the FSS is currently looking into the matter, and no decision has been made at this point.

BY SHIN HA-NEE [[email protected]]