Korea Zinc Takeover Battle: Seoul's Test on 'Korea Discount'

The Korea Zinc takeover battle, pitting the Choi family against Young Poong Corp. and MBK Partners, has put Seoul's commitment to addressing the 'Korea discount' under scrutiny. The 'Korea discount' refers to the persistent undervaluation of Korean stocks compared to international peers, despite comparable earnings and book values. The battle, with its allegations of poor governance and questionable capital allocation, highlights the need for reform. Korea Zinc's designation as a national core technology, safeguarding it from foreign acquisition, demonstrates Seoul's resolve. However, the ongoing battle and the 'Korea discount' indicate that more needs to be done to attract global investors and improve shareholder rights.

The involvement of a private equity firm in the Korea Zinc takeover battle is a test of Seoul's resolve in tackling the 'Korea discount.' MBK Partners' vowed improvement of corporate governance at Korea Zinc strikes at the heart of the 'Korea discount' issue, which has deterred global funds from investing in South Korean conglomerates due to concerns about transparency and minority shareholder rights. If MBK succeeds in its takeover and implements promised reforms, it could signal a turning point in South Korea's efforts to attract more international investment and reduce the 'Korea discount.' However, the outcome of the takeover battle and the effectiveness of MBK's proposed reforms remain uncertain, making the situation a critical test for Seoul's commitment to addressing the 'Korea discount.'

Chaebols, South Korea's elite conglomerates, play a significant role in perpetuating the 'Korea discount.' The family-centric governance and minority shareholder expropriation risks associated with Chaebols contribute to the discount. The Korea Zinc takeover battle highlights this issue, with Young Poong and MBK Partners challenging Choi Yun-beom's control. The government's designation of Korea Zinc's high-nickel precursor technology as a national core technology signals its commitment to protecting strategic industries from foreign acquisition, addressing the 'Korea discount' by safeguarding Chaebols' core technologies.

The outcome of the Korea Zinc takeover battle will influence foreign investors' perceptions of the 'Korea discount' and their willingness to invest in South Korean companies. If the government successfully defends Korea Zinc's core technology, it signals a resolve to protect national interests, potentially narrowing the discount. Conversely, a foreign takeover could reinforce the discount, as investors perceive a lack of government support for local businesses. The battle's resolution will likely influence investors' confidence in South Korea's capital market reforms and their decision to allocate funds to Korean equities.

Seoul can enhance corporate governance and transparency by implementing reforms such as mandating English language disclosures, improving dividend distribution practices, and increasing foreign investors' access to capital markets. These reforms can help address the 'Korea discount' concerns raised by the Korea Zinc takeover battle. Additionally, Seoul could consider implementing a Value-Up proposal, similar to the Tokyo Stock Exchange's initiative, to challenge companies with a PBR of less than one and encourage them to improve corporate value.



In conclusion, the Korea Zinc takeover battle serves as a litmus test for Seoul's commitment to addressing the 'Korea discount.' The outcome of this battle will significantly impact foreign investors' perceptions and willingness to invest in Korean companies. To tackle the 'Korea discount,' Seoul must implement targeted reforms to enhance corporate governance, transparency, and market accessibility. By doing so, South Korea can attract more international investment and narrow the persistent discount on its stocks.