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Korea Financial Watchdog to Probe Korea Zinc’s Share Sale Plan

(Bloomberg)

(Bloomberg) -- South Korea’s financial watchdog plans to review potential wrongdoings in Korea Zinc Co.’s share sale plan, citing “a high likelihood” that the case may constitute an unfair trade. 

Among the issues the Financial Supervisory Service plans to review is the sequence of recent events including the sale plan and a recent buyback, as well as what the board knew and should have been disclosed, Hahm Yong-il, senior deputy governor at the FSS, told reporters Thursday at a briefing. 

The company’s shares have tumbled 35% since it announced plans Wednesday to issue 3.73 million shares, equivalent to about 18% of its outstanding stock, a move that would bolster Chairman Choi Yun-beom’s position amid a takeover battle with a rival. At an indicative price of about 670,000 won apiece, the sale would raise about $1.8 billion, which it plans to largely use to pay down debt. The company also concluded a buyback of shares last week. 

The probe of the world’s largest zinc smelter renews questions about Korean boards’ independence. That has been one of the sticking points in the government’s recent campaign to enhance shareholder value and improve corporate governance.

Korea Zinc may have omitted important information and engaged in a possibly unfair trade if the board had known that the share sale proceeds would go to pay the debt incurred to buy back and cancel shares, Hahm said. “Considering the seriousness of the matter, expedited processing is planned,” he said.  

 

Shares of Korea Zinc fell 7.7% to 998,000 won apiece on Thursday.

The watchdog also said it plans to review any spreading of rumors tied to the events, contradictory descriptions in public documents, accounting of transactions, and use of possibly undisclosed information. 

Any attempts at artificial stock price manipulation will also be investigated, Hahm said. 

Korea Zinc declined to comment Thursday. But in a statement Wednesday, the company said that the share sale is an attempt to ease investor concerns over a potential delisting, as the number of outstanding shares has been significantly reduced due to takeover offers. The company will cap investors’ purchases to 3% of the offer in a bid to expand the shareholder base, it said.

Korea Zinc’s shares have surged since September, when top investor Young Poong Corp., backed by private equity firm MBK Partners Ltd., sought to take control of the company with a tender offer. The offer was opposed by a rival faction — led by Choi and supported by buyout heavyweight Bain Capital — that fought back with the buyback offer that concluded last week. 

“If you look at the recent tender offer, we have strong doubts whether the board members’ decision-making is independent and objective,” Hahm said.

He added that the FSS is also investigating Mirae Asset Securities Co., starting with on-site inspection Thursday. During Korea Zinc’s buyback, the brokerage likely conducted due diligence regarding the new share sale. Mirae Asset may have been in position during the buyback to know that a share sale plan was in works, but may have left out that information to investors, Hahm said. 

Mirae Asset Securities declined to comment

Even prior to Thursday, dealings surrounding Korea Zinc have been under the FSS probe since earlier this month, including possible stock manipulations during the tender offer and the share buyback. 

Governor Lee Bokhyun said then the offers have become “overheated” and called for an investigation specifically into spreading rumors to influence stock prices. 

--With assistance from Shinhye Kang.

(Updates with FSS review plan details in second, third paragraphs.)

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