[News] Korea Zinc’s Battery Precursor Tech Named Core National Asset, Complicating MBK Takeover

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It is not just the chip business that’s critical to national security. Following private equity firm MBK Partners’ attempt to acquire Korea Zinc, South Korea’s Ministry of Trade, Industry and Energy has officially recognized the non-ferrous metal smelting giant’s high-nickel precursor manufacturing tech as a national core technology on November 18th.

The move, according to the Chosun Daily, is aimed to give South Korean battery manufacturers a competitive edge over their Chinese counterparts, underscoring the technology’s strategic significance in enhancing energy density in advanced batteries.

While the designation mandates government approval for any overseas sales, it is creating a substantial obstacle for private equity firm MBK Partners, the report suggests.

Top Zinc Smelting Company, with Strategic Importance

Precursors, the report further explains, are compounds created by combining nickel, cobalt, and manganese, with high-nickel varieties containing more than 80% nickel.

It is worth noting that over 90% of precursors in South Korea are currently imported from China, notes the Chosun Daily. Korea Zinc’s push to locally mass-produce high-nickel precursors is, therefore, considered crucial for the country’s economic and national security interests.

Another report by the Korea Herald also brings up Korea Zinc’s importance to the country, for the company has established the benchmark treatment charge for zinc since the late 2000s, which is the fee earned by smelters for transforming mined concentrates into metal.

According to the Korea Herald, Korea Zinc currently holds the crown as the world’s largest zinc smelting company by output capacity, surpassing Belgium’s Nyrstar and Switzerland’s Glencore. Additionally, it is the largest global buyer of zinc concentrates, purchasing 1.4 million tons annually, the report says.

Ownership Battle between MBK Partners and Korea Zinc

MBK Partners, a well-known North Asia-focused equity firm, is also known for its strategy of reselling acquired companies, which may raise South Korea’s concerns and prompted the government to take action.

A previous report by the Korea Economic Daily notes that the MBK has teamed up with Korea Zinc’s largest shareholder Young Poong Corp, kicking off a tender offer on September 13^th to acquire a controlling stake in the company. To counter the acquisition bid, Korea Zinc has joined forces with U.S. private equity firm Bain Capital, according to the Korea Economic Daily.

As of November 5^th, the MBK coalition holds a 39.83% stake, while Korea Zinc’s allies were estimated to have secured 35.33%, according to the Korea Economic Daily.

Citing critics as well as Korea Zinc’s labor union, the Chosun Daily report brings up the possibility that MBK might sell the company to foreign entities, particularly Chinese investors, though MBK has denied these claims. Now, the government’s designation adds complexity to potential exit strategies for MBK.

Industry insiders cited by the report believe that MBK may face difficulty finding domestic buyers willing to pay the estimated 8 trillion won (USD 6 billion) for its stake in Korea Zinc. Analysts cited also suggest that MBK may consider alternative strategies, such as divesting non-core assets or focusing on generating dividend income.

One potential approach, according to the Chosun Daily, could involve spinning off Korea Zinc’s precursor technology into a separate entity while selling off its core zinc smelting operations, which would allow MBK to retain control of the technology within South Korea while monetizing other business units.

(Photo credit: Korea Zinc)