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As MBK Partners, which has been pushing to secure control of KOREA Zinc, reaffirmed its stance that it will not immediately exercise the call option under the management cooperation agreement signed with Youngpoong, controversy over investment returns is intensifying. Because the structure causes the stock purchase price to rise as the timing of exercising the call option is delayed, there are concerns that this could burden the return rates of institutional investors (LPs) who provided capital to MBK.
On the other hand, if Youngpoong sells its KOREA Zinc shares through the exercise of the call option, its dividend income and direct shareholding ratio may decrease. Analysis suggests that despite the common goal of securing control, the economic interests of both parties regarding the timing of capital recovery and the share sale price do not necessarily align.
According to investment banking (IB) industry sources on the 12th, MBK recently announced its policy of not exercising the call option included in the management cooperation agreement signed with Youngpoong until it recovers its investment in KOREA Zinc.
Previously, on the 19th of last month, MBK and Youngpoong explained that they could not exercise the call option solely because two years had passed since the signing of the contract, but rather that separate contractual conditions must be met. MBK also reaffirmed its stance in a statement on the 9th that it would not exercise the call option before recovering its investment.
The core of the controversy lies in the stock purchase right included in the management cooperation agreement signed in September 2024. Under the agreement, if certain conditions are met, MBK can purchase approximately 2.57 million shares of KOREA Zinc held by Youngpoong at a pre-determined price.
The reference price for the call option is 700,000 won per share. In addition, 35,000 won, which is 5% of the reference price, is added annually on a simple interest basis. Accordingly, as two years have passed since the signing of the contract, the exercise price calculated by the formula is approximately 770,000 won per share currently, rising to 805,000 won after three years and 840,000 won after four years.
Based on the approximately 2.57 million shares subject to the call option, the exercise price has an effect of increasing by approximately 90 billion won each year. The longer MBK delays exercising the option, the more capital is required to secure the same number of shares.
This structure can affect not only MBK's investment recovery strategy but also the return rates of LPs. Private equity funds invest in companies with capital raised from institutional investors and others, then realize profits through share sales and other means. If the investment period lengthens or additional capital injection occurs, the annualized internal rate of return (IRR) may decrease.
It is known that MBK's average purchase price for KOREA Zinc shares was approximately 940,000 won. Compared to the current formula-based call option price of 770,000 won, this is approximately 170,000 won, or about 18%, lower per share. Securing additional shares at that price could be expected to have the effect of lowering the average acquisition cost when combined with existing holdings.
However, the price advantage of the call option may diminish over time. For example, assuming KOREA Zinc's stock price is 900,000 won, purchasing approximately 2.57 million shares at 770,000 won per share results in a simple price difference of approximately 334 billion won. Conversely, if the exercise price rises to 840,000 won, the difference decreases to approximately 154 billion won.
This is a simple comparison of the difference between the stock price and the exercise price and does not represent actual investment profit. Factors such as option exercise conditions, financing costs for purchase funds, taxes, and the possibility of share disposal must be considered together. However, the fact that the economic benefit through the call option may shrink if the exercise price rises during a delay in investment recovery is a burden factor.
Financial costs associated with existing acquisition finance are also a variable. MBK utilized large-scale borrowings during the public tender offer for KOREA Zinc, and it is known that interest burdens remain on an outstanding balance of approximately 600 billion won in stock-collateralized loans. If estimates that annual interest costs reach approximately 37 billion won are correct, financial costs will inevitably accumulate as investment recovery is delayed.
If the rise in the call option exercise price and the interest burden on borrowings continue simultaneously, the impact on the final investment return rate could also grow. Ultimately, analysis suggests that the economic value of the call option and the investment performance of LPs may vary depending on when MBK sets the timing for recovering its investment.
Youngpoong is also in a situation where it is difficult to judge whether to exercise the call option based solely on the sale proceeds. If MBK exercises the option, Youngpoong can secure cash by selling part of its held KOREA Zinc shares at the agreed price, but it must forgo the dividend income generated from those shares.
Assuming KOREA Zinc's annual dividend per share is 20,000 won, the dividends generated from the approximately 2.57 million shares subject to the call option amount to approximately 51.4 billion won annually. This is the dividend income Youngpoong could secure if it continues to hold those shares. Conversely, if it transfers the shares to MBK, assuming the dividend level is maintained, its annual dividend income would decrease by more than 50 billion won.
The change in influence due to a decrease in direct shareholding ratio must also be considered. However, since both parties are maintaining the management cooperation agreement, the impact of share transfer on actual voting rights exercise and control needs to be examined separately based on the contract contents.
Youngpoong is emphasizing that the longer the delay in exercising the call option, the higher the agreed stock sale price becomes. It also maintains that it has secured a put option, which allows it to demand the purchase of shares at the agreed price if certain contractual conditions are met, even if KOREA Zinc's stock price falls.
The put option is Youngpoong's right to request MBK to buy its held shares. Since the same price calculation formula applies as with the call option, it can be viewed by Youngpoong as a mechanism to defend against losses from a stock price decline to some extent.
On the other hand, it may act as a potential financing burden for MBK. This is because if KOREA Zinc's stock price falls below the agreed price and Youngpoong's put option exercise conditions are met, MBK may have to purchase shares at a price higher than the market price.
Ultimately, the call option is both a right for MBK to secure additional shares and a means for Youngpoong to increase sale proceeds. Conversely, while the put option is a mechanism to defend Youngpoong against stock price decline risk, it can become a potential additional purchase obligation for MBK. It is a structure where both parties expect different economic effects from the same contract.
Uncertainty surrounding the securing of control also remains. Although MBK and Youngpoong formed a united front to secure control of KOREA Zinc, they have not yet achieved their original goal. If securing control is delayed, the likelihood of a longer investment period increases, which could affect investment recovery and call option exercise strategies.
In particular, detailed conditions regarding call option exercise requirements need further verification. It is difficult to determine based on public explanations alone how much of MBK's existing KOREA Zinc holdings must be disposed of to exercise the option, or whether selling only a portion of the shares would meet the conditions.
The industry expects that the development of the upcoming control dispute over KOREA Zinc, along with the actual exercise conditions of the call and put options, MBK's investment recovery strategy, and LPs' expected return rates, will emerge as major variables.
Youngpoong must consider the agreed sale price that rises over time and dividend income, while MBK is in a situation where it must bear both financial costs from delayed investment recovery and rising option prices. Attention is focused on whether the interests of the two parties, bound together under the common goal of securing control, will be maintained during the actual process of recovering their investments.
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*This content was translated by AI.View Original
