Korea Zinc rebuffs MBK, Young Poong's W9.3b 'fund circulation' allegations

Korea Zinc has rebuffed allegations from MBK Partners and Young Poong that it engineered a circular flow of funds, calling the claims an arbitrary attempt to link unrelated transactions. The pushback came after MBK and Young Poong raised the new allegations just a day after losing an 830 billion won ($627 million) shareholder derivative suit against the company on Thursday, prompting Korea Zinc to urge the two sides to stop disrupting its normal business operations.

In a statement issued Friday, Korea Zinc shrugged off the allegations, saying they amounted to nothing more than "a forced, patchwork argument that relies on arbitrary interpretation and conjecture rather than objectively proven facts."

The dispute centers on the flow of funds Korea Zinc used in the past for commercial paper purchases and fund contributions.

MBK and Young Poong had alleged that Korea Zinc acquired 9.36 billion won worth of commercial paper issued by Young Media ENT in December 2019, and that the proceeds passed through multiple entities before being used to acquire a stake in Imagine Asia, a Kosdaq-listed company.

They further claimed that about three weeks later, Korea Zinc contributed 9.6 billion won to a fund managed by One Asia Partners, and that the fund's investment proceeds flowed through related entities to repay the commercial paper that had been issued earlier.

MBK and Young Poong argued that while the commercial paper Korea Zinc held directly was repaid, the investment risk remained within the fund Korea Zinc had contributed to, as the funds were converted into equity stakes. They called for an investigation into the decision-making process behind the transactions and potential conflicts of interest.

Korea Zinc rebuffed that characterization, saying it was unreasonable to interpret the transactions as an intentional circular funding structure simply by connecting certain amounts and transaction dates without properly verifying each financial transaction and fund investment.

Korea Zinc said investing a portion of its surplus funds in financial products such as funds is a standard treasury activity. It said a clear distinction must be drawn between contributing capital to a fund and directly managing that fund.

"It is realistically impossible — and simply not reasonable — to track or control how funds flow through multiple counterparties and entities after an individual investment is made," the company said.

Korea Zinc then said that selecting specific investment targets, drawing up investment plans, conducting due diligence and executing capital deployment are all functions of the general partner. It said claiming that Korea Zinc directly intervened in the fund manager's individual investment decisions merely because it was a limited partner distorts the facts.

The company also said no concrete evidence had been presented to support the claim that transactions were prearranged at the corporate level, or that the fund's operations were improperly influenced, for the personal benefit of Korea Zinc Chairman Choi Yun-beom or any other specific individual.

Korea Zinc also criticized MBK for applying a double standard — drawing a clear line between its role as an investor and its role as a manager in the context of the Homeplus crisis, while holding Korea Zinc to a different measure.

MBK Partners Chairman Kim Byung-ju recently stated in a written excuse submitted to the National Assembly for skipping a national audit session on the Homeplus situation that he does not involve himself in the management of individual portfolio companies.

Korea Zinc said MBK emphasizes the separation of investor and management roles when it comes to its own investments, yet holds Korea Zinc responsible for a fund manager's investment decisions on the sole basis that it was a limited partner — a clear double standard, it said.

The latest exchange is also drawing attention because it erupted immediately after Korea Zinc won a series of major court rulings on Thursday.

The Seoul Central District Court's Civil Division 30 ruled Thursday against Young Poong in a shareholder derivative suit it had filed against 10 Korea Zinc directors, including Chairman Choi, seeking approximately 837 billion won in damages.

The court found that Korea Zinc's decision to conduct a tender offer for its own shares in 2024 did not constitute a breach of the directors' duty of care or duty of loyalty. It said directors cannot be held liable for damages as long as they reviewed the relevant information and made a reasonable business judgment in the company's interest, provided that judgment was not grossly unreasonable.

On the same day, a separate shareholder derivative suit filed by MBK challenging Korea Zinc's sale of its Hanwha shares was also dismissed.

However, the two rulings addressed the treasury share tender offer and the Hanwha share sale specifically, and did not directly adjudicate the allegations now being raised about the fund investment flows. Young Poong and MBK said they plan to appeal the first-instance ruling on the treasury share tender offer.

Korea Zinc said repeatedly raising unverified allegations in the course of a management control dispute places a burden on both the company and its shareholders.

"Repeatedly raising unverified allegations for the purpose of seizing management control, while ignoring productive discussions aimed at sustainable corporate growth and enhancing shareholder value, only deepens confusion and fatigue among the market and shareholders," the company said.

Korea Zinc urged MBK and Young Poong to stop pressuring the company through litigation and public campaigns, and to focus instead on their role as shareholders in enhancing corporate value.