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Korea Zinc shares dive on plan to issue $1.8 billion of new stock after buyback

Published 10/29/2024, 10:48 PM
Updated 10/30/2024, 01:56 AM
© Reuters. Yun B. Choi, Chairman of Korea Zinc's board speaks during a press conference in Seoul, South Korea, October 4, 2024.   Yonhap via REUTERS/ File Photo
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By Hyunjoo Jin and Joyce Lee

SEOUL (Reuters) -Shares in Korea Zinc fell as much as 29.9% to their daily lower limit on Wednesday after the world's top zinc refiner said it planned to issue new stock worth about $1.8 billion just two days after it bought back shares at a higher price.

Run by the Choi family, Korea Zinc has been in a bitter fight to control the $18 billion zinc empire with the co-founding Chang family, whose conglomerate Young Poong made an initial joint offer with private equity firm MBK Partners in September.

Korea Zinc, which had borrowed heavily to buy back $1.5 billion of its shares at a premium price to help ward off the takeover attempt from its biggest shareholder Young Poong and partner MBK, said most of the proceeds would be used to repay debt.

Korea Zinc said it would allocate 20% of the newly issued shares to its employee ownership association, which experts said would boost the number of shares friendly to the management team.

MBK condemned the equity raising on the basis it would dilute the value of existing shares and said it showed Korea Zinc's management was disregarding shareholders. MBK added that it would seek legal measures to stop the move. Korea Zinc did not respond immediately to a request for comment on MBK's response.

Korea Zinc said in a regulatory filing its board decided on Wednesday to issue some 3.73 million shares at an estimated 670,000 won per share, which is 57% lower than Tuesday's closing price of 1,543,000 won.

The surprise move came after Korea Zinc on Monday bought back 9.85% of the company's shares for 890,000 won each following a $1.5 billion tender offer it launched to block shareholders from selling their stakes to Young Poong and MBK.

Korea Zinc's management team risks losing investor confidence because of the new share issue apparently aimed at solidifying control of the company, said Lee Chang-min, a specialist in corporate governance at Seoul-based Hanyang University.

"Korea Zinc is going to an opposite direction to enhancing shareholder value. They are not sending a good signal to the market," he said.

Korea Zinc said in a statement that the new share issuance would broaden the company's shareholder base and reduce the risk of it being delisted from the stock market due to a lack of liquidity.

The company said of the 2.5 trillion won in funds to be raised, 2.3 trillion won would be used to repay debt.

© Reuters. Yun B. Choi, Chairman of Korea Zinc's board speaks during a press conference in Seoul, South Korea, October 4, 2024.   Yonhap via REUTERS/ File Photo

The new shares will be listed on Dec. 18, the filing added.   

($1 = 1,382.9400 won)

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