Korea Zinc and MBK Partners (MBK) trade sharp barbs ... Investment information at the time of a blind-fund commitment becomes a key issue [fn Market Watch]

[Financial News] Whether investment information was shared when commitments were made to a blind fund has emerged as a key issue in the dispute between Korea Zinc and Youngpoong Corporation and MBK over their investment in Arc Media. After Korea Zinc committed capital to the fund, Chairman Choi Yun-beom and people associated with him made personal investments, making the key question how much the limited partner (LP) knew about the investment targets and deployment schedule.
According to investment banking (IB) industry sources on the 12th, Youngpoong Corporation and MBK are questioning the sequence of transactions after Korea Zinc committed about 23.659 billion won to One Asia Partners’ “Korea Growth No. 1” fund on May 12, 2020. Choi personally purchased 1.7 billion won worth of Arc Media’s first convertible bond (CB) issue on the 29th of the same month, and seven people described as including close associates participated in a third-party-allotted paid-in capital increase on June 5, according to Youngpoong and MBK.
The fund acquired 25 billion won worth of Arc Media’s second CB issue on July 10. Youngpoong and MBK have raised the possibility of prior knowledge of the investment plan, noting that Choi and people associated with him invested first during the 59 days between Korea Zinc’s payment of its commitment and the fund’s actual investment. They also cited as a point warranting scrutiny for potential conflicts of interest that one of the participants in the capital increase was appointed an outside director and audit committee member at Korea Zinc the following year.
Blind funds typically raise capital without determining their investment targets in advance, but each investment goes through procedures such as investment review and capital calls. It is therefore necessary to distinguish how much information was shared when the fund was formed from how much was shared when the capital was actually paid in.
In response to these claims, Korea Zinc countered that selecting the fund’s investments, conducting investment reviews and deploying capital are the exclusive prerogatives of the general partner (GP).
Korea Zinc maintains that it participated only as an LP and did not lead individual investment decisions. The company said, “They are arbitrarily piecing together the timing of certain transactions and repeating their previous claims,” and characterized the allegations as a public-opinion campaign amid the control dispute.
From the IB industry’s perspective, the key issue in this controversy is when and through what channels investment information was conveyed to the LP and related people, regardless of whether the GP made investment decisions independently. At the same time, the sequence of investment dates alone is not enough to conclude that the transactions were improper.
An IB industry source noted, “Capital call requests, investment review records, and the conversion terms of Choi’s personal CBs and the fund’s CBs are likely to be among the materials used to assess whether the transactions were appropriate.”
Youngpoong and MBK claim that investigations and criminal probes by the relevant authorities are underway. Korea Zinc says it will respond firmly, including through legal action, to conduct that damages the company’s value through unverified allegations.
Another IB industry source added, “Ultimately, the dispute between the two sides is expected to turn on whether the process for sharing investment information and the procedures for managing conflicts of interest were appropriate, rather than on when the investment funds were deployed.”
[email protected] Kim Kyung-ah Reporter