Decline in Korea Zinc's stock price boosts Yeungpoong's net profit... "Potential conflict of interest between Korea Zinc shareholders and Yeungpoong"

*This content was translated by AI.

While Korea Zinc's stock price fell by 24.1% in the second quarter of this year, Yeungpoong recorded approximately 452.1 billion won in quarterly evaluation gains related to its management cooperation agreement options.

During the same period, Yeungpoong's consolidated operating profit was only 1.5 billion won, but its net income reached 386.2 billion won. It is interpreted that the option evaluation gains played a significant role in boosting Yeungpoong's non-operating income and net income. This is reportedly due to call options and put options granted under a management cooperation agreement signed between Korea Zinc and private equity fund MBK Partners for an aggressive merger and acquisition (M&A).

According to the accounting industry and public disclosures on the Financial Supervisory Service's electronic system, approximately 452.1 billion won in evaluation gains related to Korea Zinc stock options granted under a management cooperation agreement with MBK were reflected in Yeungpoong's consolidated financial statements for the second quarter of this year. Put options and call options are classified as "derivative financial instruments" in accounting, and the resulting evaluation gains or losses measured at fair value at the end of each quarter are recorded on the income statement.

A call option is the right to purchase shares under specified conditions, while a put option is the right to sell shares under similar conditions. The value of these options fluctuates with Korea Zinc's stock price, thereby affecting Yeungpoong's accounting gains or losses. In other words, every movement in Korea Zinc's stock price causes the option value to change in the opposite direction, which in turn impacts Yeungpoong's net income.

In the second quarter of this year, Yeungpoong's consolidated operating profit was only about 1.5 billion won, while its net income reached approximately 386.2 billion won. During this quarter, when net income was about 257 times higher than operating profit, Korea Zinc's stock price fell by 24% (342,000 won), dropping from 1.422 million won at the end of March to 1.08 million won at the end of June. As Korea Zinc's stock price declined, Yeungpoong's net income increased accordingly.

According to analysis by the accounting industry, the first quarter of this year showed the exact opposite trend. At the end of last March, Korea Zinc's stock price had risen by 8% (106,000 won) compared to the end of the previous year, reaching 1.316 million won. During this period, Yeungpoong reportedly recognized evaluation losses in the range of 130 billion won related to options tied to Korea Zinc. At that time, Yeungpoong's consolidated net income was only about 20.8 billion won. As Korea Zinc's stock price rose, Yeungpoong's net income decreased significantly.

Some segments of the industry also note that over the past six quarters, fluctuations in Korea Zinc's stock price and evaluation gains or losses on options under the management cooperation agreement between Yeungpoong and MBK have consistently moved in opposite directions.

In the fourth quarter of 2024, the company recorded option evaluation losses in the range of 60 billion won. In the first quarter of 2025, the stock price at the end of the period fell by 22.7% (228,000 won) compared to the base price of 1.006 million won, resulting in evaluation gains exceeding 320 billion won from options.

In the second through fourth quarters of last year, when Korea Zinc's stock price at the end of each period rose by 41,000 won, 102,000 won, and 395,000 won respectively compared to the base price, evaluation losses were recognized in the ranges of 60 billion won, 140 billion won, and 550 billion won. However, option evaluation gains or losses are accounting profits or losses that do not involve actual cash inflows or outflows.

This has led to assessments that there is a conflict of interest between Korea Zinc shareholders and Yeungpoong. From Yeungpoong's perspective, the lower Korea Zinc's stock price falls, the higher its consolidated net income becomes. This contradicts the expectations of ordinary Korea Zinc shareholders who anticipate rising stock prices and improved corporate valuation, according to the investment industry.

According to reports from the financial investment industry and public disclosures, in September 2024, Yeungpoong, advisor Jang Hyung-jin, and Korea Enterprise Investment Holdings, a special purpose company (SPC) established by MBK, signed a management cooperation agreement ahead of a public tender offer for Korea Zinc shares. Under the agreement, MBK holds call options, which grant the right to purchase Korea Zinc shares held by Yeungpoong under certain conditions. Yeungpoong and its related parties hold put options, granting them the right to sell Korea Zinc shares to MBK under specified conditions.

In March last year, Yeungpoong contributed all 5,262,450 shares of Korea Zinc it held as in-kind capital to a newly established limited company named YPC (Yeungpoong Partners Company). At that time, it is reported that the options related to the management cooperation agreement between Yeungpoong and MBK were transferred to YPC.

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*This content was translated by AI.