An appeals court overturned a first-instance ruling and sided with Korea Zinc in a dispute with Young Poong over whether the company's issuance of new shares worth over 520 billion won to a Hyundai Motor Group overseas unit was lawful. Hyundai Motor Group's stake of about 5% in Korea Zinc, which is classified as friendly shares on the side of Chairman Choi Yun-beom, survived. However, Korea Zinc lost a lawsuit over board appointments just a day earlier, so the outcome of its management rights battle with Young Poong and MBK Partners remains hard to predict.
The Seoul High Court's 18th Civil Division 3 ruled against Young Poong on the 13th in its appeal of a suit seeking to void the new share issuance that Young Poong had filed against Korea Zinc. The case began when Korea Zinc issued new shares worth 527.2 billion won to HMG Global, an overseas unit of Hyundai Motor Group, and Young Poong challenged their validity. Young Poong had won in the first-instance trial, but the result was reversed on appeal.
The first issue was whether the rights offering was necessary for management purposes. Unlike the first-instance court, the appeals panel found that Korea Zinc's issuance of new shares was necessary for management. The panel acknowledged that the capital raise was pursued for a strategic partnership with Hyundai Motor Group and concluded that the new shares issued to HMG Global could not be deemed void on that basis. Some of Korea Zinc's arguments were reflected in the ruling.
The second issue concerns the impact on the shareholding structure. Following the appeals ruling, Hyundai Motor Group's stake of about 5% in Korea Zinc will remain intact. Hyundai Motor Group has been regarded as a friendly force for Choi. Analysts say Choi's side, which is continuing its stake competition with the Young Poong and MBK Partners alliance, appears to have caught its breath for the time being.
The third issue is the conflicting court rulings within two days. Korea Zinc lost a lawsuit over board appointments on the 12th. With one case lost and another won a day apart, the appeals victory alone is hard to view as cementing an advantage for Choi's side in the control dispute. Although the friendly shares were preserved through the share issuance suit, uncertainty over the board composition has not been resolved.
The positions of the parties are clearly divided. Young Poong filed suit arguing that the new shares Korea Zinc issued to HMG Global were void, and this argument was accepted in the first-instance trial. Korea Zinc took the position that the capital raise was necessary for management to pursue a strategic partnership with Hyundai Motor Group, and the appeals panel partially accepted this argument.
Points to watch include the specific reasoning of the appeals ruling, Young Poong's follow-up response, and how the board appointment lawsuit lost on the 12th will proceed. The outcomes of the two cases together are expected to shape the course of the management rights dispute.