Financial watchdog puts brakes on Korea Zinc’s W2.5tr capital increase

Korea Zinc’s decision to execute a 2.5 trillion won ($1.8 billion) paid-in capital increase has come under the scrutiny of financial authorities. The country’s financial watchdog views there could be a possibility of unfair practice in a potential overlap in the period.

“The Financial Supervisory Service will look into whether there had been any illegality in the execution of Korea Zinc’s tender offer and paid-increase,” Ham Yong-il, the deputy chair at the watchdog agency, said at a press briefing held Thursday.

The FSS is to look into the timeline of the tender offer and capital increase lodged by the management of Korea Zinc. On Wednesday, the board of Korea Zinc decided to issue a total of 3.73 million shares to raise 2.5 trillion won. The move came a week after wrapping up the tender offer to purchase its treasury shares back on Oct. 23.

In its tender offer statement registered on Oct. 11, Korea Zinc stated the company “does not have a detailed plan that brings change to the financial structure” after the bidding campaign.

Yet its capital increase registration statement shows Mirae Asset Securities conducted due diligence on the company from Oct. 14 to Tuesday, implying there is an overlap with the period of the tender offer.

The regulator views that Korea Zinc could have set up plans to purchase treasury stocks through loans, which they would pay off by raising capital through the issuance of new shares.

“Shareholders made decisions on the tender offer subscription, based on the management’s shareholder return policy,” Ham said. “If the board had been aware of the plan to increase the capital when the tender offer was underway, this is an act of unfair practice.”

Mirae Asset Securities is also a subject of investigation. The brokerage house was the underwriter of the tender offer lodged by the management of Korea Zinc. It is also in charge of running the company’s increase in paid-in capital. The FSS kicked off an on-site investigation of the company in the day.

Meanwhile, shares of Korea Zinc, the world's largest zinc smelter, closed at 998,000 won on Thursday, shedding 83,000 won or 7.68 percent from the previous day. Earlier in the morning session, they dropped to as low as 830,000 won. Though it recovered to as high as 1.08 million in the afternoon, the share price lost nearly 100,000 won by the close.

The shares were on a two-day losing streak, following the announcement of a capital increase. On Wednesday, shortly after the company announced the plan to issue new shares, the shares experienced a 30 percent drop, hitting the lower circuit-breaker limit at 1.08 million won.

With the recent decline in the stock price, the market capitalization of Korea Zinc dropped to 20.6 trillion won as of closing, marking an over 10 trillion won loss from Tuesday's 31 trillion won.