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Bain joins battle for control of world’s biggest zinc smelter


Private equity firm Bain Capital has joined a bitter struggle for control of the world’s biggest zinc smelter, one of an array of big-name industrial companies trying to fend off South Korea’s leading buyout group.

The battle over Korea Zinc is being closely watched in the mining sector because of concerns it could delay the smelter’s annual zinc supply contract negotiations, which serve as a global benchmark. Korea Zinc is a close partner to big resources groups such as Teck Resources and Trafigura.

Michael Byung Ju Kim, known as the “godfather of Asian private equity”, is leading a takeover bid aimed at Korea Zinc’s chair Choi Yun-beom, a scion of one of the company’s two founding families.

Kim’s firm, Seoul-based MBK Partners, accuses Choi of overseeing a deterioration in the profitability of Korea Zinc, which has a market capitalisation of $11bn, since he took the helm in 2019.

But on Wednesday Choi announced he had secured Bain’s support to defend the company from a “hostile, predatory attack”. As part of the deal, which also involves a $2bn share buyback by Korea Zinc, Bain will pay Won430bn ($326mn) for a 2.5 per cent stake in the company.

Korea Zinc, the world’s biggest zinc smelter by annual output, also produces battery materials needed for western efforts to build a non-Chinese electric vehicle supply chain. Its management has said it is being subjected to a hostile takeover bid led by foreign-backed “corporate raiders” intent on selling the company off to China.

“For the sake of our nation, our people and our shareholders we have to prevent our technology from being sold to China,” Korea Zinc’s vice chair Lee Je-jung told reporters last week.

But Park Yoo-kyung, head of emerging market equities at APG Asset Management, said Korea Zinc’s management was engaging in “dirty public propaganda, using Koreans’ fear of industrial competition from China”.

MBK has publicly committed not to sell the company to a Chinese bidder or to any buyer not acceptable to the Korean government.

Korea Zinc and its parent company, Young Poong Group, were co-founded by the respective patriarchs of the Choi and Jang families — both refugees from North Korea. Under an informal agreement reached between the two co-founders, Korea Zinc would be managed by the Choi family and Young Poong and its affiliates by the Jang family.

Last month, however, MBK announced that the Jang family had handed over stewardship of its 33.1 per cent stake in Korea Zinc to the private equity fund and that together they would make a tender offer for enough shares to secure close to a 50 per cent stake.

Jeonghwan Kim, a partner at MBK, said the Jang family had approached the fund due to their concerns over Choi’s leadership. He noted that Choi and his extended family only own 15.6 per cent of Korea Zinc.

Kim told the Financial Times that Choi was responsible for “poor corporate governance” at the company, singling out a multimillion-dollar investment made without board approval into funds operated by a close school friend of Choi’s, currently standing trial on stock manipulation charges.

Raw materials for battery manufacturing are displayed in glass containers at the Korea Zinc booth during an exhibition in Seoul, South Korea
The battle over Korea Zinc is being closely watched in the mining sector because of concerns it could delay the smelter’s annual zinc supply contract negotiations © Jean Chung/Bloomberg

Korea Zinc argued that the funds, which were invested in a K-drama studio and a K-pop label among other businesses, were legitimate investments that did not require board approval.

Several strategic investors in Korea Zinc told the FT they had concerns about how the takeover battle — and possible subsequent private equity involvement — would affect the company, a major global producer of refined zinc, lead and silver. Shareholders include affiliates of South Korean conglomerates LG, Hanwha, and Hyundai, as well as Swiss trading house Trafigura.

“As business co-operation with Korea Zinc requires long-term investment, there is concern that the success and continuity of the business co-operation may be jeopardised if the management control dispute is prolonged due to [MBK’s] tender offer,” Hanwha said.

One shareholder also expressed concern about future investment in a nickel smelter that Korea Zinc is building in the south-eastern city of Ulsan. When completed, the smelter, in which Trafigura is an investor, would be a key source of nickel that meets US rules on sourcing for battery materials.

Trafigura said Korea Zinc’s decision to diversify into battery metals “was a well-thought-out move to expand its portfolio”.

The trading group, which holds a 1.5 per cent stake in Korea Zinc, praised the management team in a statement, adding: “As shareholders, we are monitoring any corporate actions that may disrupt the company’s operations or future prospects.”

However Namuh Rhee, chair of the Korean Corporate Governance Forum, said fears of disruption were overblown, arguing that it would be better for Korea Zinc to be run by professional managers appointed by MBK than by an “unproven” third-generation heir such as Choi.

“MBK is a high-quality private equity fund with most of its funds from pension endowments, so it will not likely pursue short-term gains from Korea Zinc,” said Rhee.

The saga unfolds at a time when zinc smelters around the world are struggling to get enough input material due to lower mined supply of zinc concentrate.

Korea Zinc typically negotiates an annual contract in January or February with its major supplier Teck Resources over zinc processing fees, which acts as an informal global benchmark for the rest of the industry.

If the existing management is distracted by the takeover battle, it “may delay the first round of information sharing in the annual zinc treatment charge negotiation,” said Colin Hamilton, commodities analyst at BMO Capital Markets.

MBK announced last week that it was increasing its tender offer, the deadline for which is on Friday, from Won660,000 to Won750,000 per share. Korea Zinc’s share price, up almost 30 per cent since the initial tender offer was announced, stood at Won713,000 at the end of trading on Wednesday.



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