Korea Zinc issued new shares to Hyundai Motor Group's overseas unit

Youngpoong called the issuance unfair to existing shareholders

Korea Zinc said the move served a legitimate business purpose

Appeals court reverses first ruling, finds share issuance valid

Korea Zinc's headquarters in Jongno-gu, Seoul. [Yonhap]
Korea Zinc's headquarters in Jongno-gu, Seoul. [Yonhap]

Korea Zinc prevailed in an appeals court over a lawsuit filed by Youngpoong challenging the validity of its 520 billion won ($390 million) share issuance, with the court overturning a lower court ruling that had sided with Youngpoong.

The Seoul High Court's Civil Division 18-3, presided over by Judge Kim Yong-seok, ruled Friday in favor of Korea Zinc, reversing the first-instance ruling in Youngpoong's suit seeking to invalidate the share issuance.

"The share issuance in this case is recognized as having been carried out within the scope necessary to achieve the company's business objectives and therefore cannot be deemed invalid," the court said.

Korea Zinc had issued 1,045,430 new shares in 2023 to HMG Global, an overseas subsidiary of Hyundai Motor Group, through a third-party allotment rights offering. The issuance was valued at approximately 527.2 billion won. Through the transaction, HMG Global acquired a 5 percent stake in Korea Zinc.

A third-party allotment rights offering is a method by which a company issues new shares and allocates them to a specific investor in exchange for capital. It differs from a general rights offering in that the shares are issued to an outside entity rather than to existing shareholders.

Youngpoong objected to the deal. The company argued that there was no legitimate business reason to issue new shares to a third party while excluding existing shareholders, and that issuing shares to HMG Global — which it said did not qualify as a "foreign joint venture" under Korea Zinc's articles of incorporation — was improper.

Korea Zinc maintained that the issuance was justified. The company said it had set new business goals based on advice from a consulting group, and that it had entered into a business alliance with Hyundai Motor following recommendations that a strategic partnership funded by outside capital was necessary. Korea Zinc said the share issuance was driven by legitimate business objectives.

With the two sides sharply divided, Youngpoong filed suit in 2024 seeking to have the share issuance declared invalid.

The first-instance court had ruled in Youngpoong's favor, finding in June last year that the share issuance should be voided.

That court found that Korea Zinc's issuance of new shares to HMG Global — a company that had not participated as a joint venture partner — infringed on the rights of existing shareholders.

However, the lower court did not accept Youngpoong's argument that there was no legitimate business reason to issue new shares to a third party.

The first-instance court said the share issuance appeared to have been made for medium- to long-term business purposes through new eco-friendly ventures, and that the mere existence of a management control dispute was not sufficient grounds to conclude the shares were issued solely to entrench management control.

Meanwhile, the Seoul Central District Court's Civil Division 29, presided over by Judge Ko Seung-il, ruled Thursday in favor of Youngpoong and MBK Partners in a separate suit against Korea Zinc seeking to annul resolutions passed at the regular shareholders' meeting in March last year. The court found that Korea Zinc could not restrict existing shareholders' voting rights by applying provisions related to cross-shareholding for the purpose of defending management control.


notstrong@heraldcorp.com