Younger Poong, the most important shareholder of Korea Zinc, has formally raised considerations concerning the circulation of funds surrounding Cheongho Comnet involving Korea Zinc Chairman Choi Yun-beom and former One Asia Companions CEO Ji Chang-bae. Based mostly on a overview of regulatory filings, court docket rulings, and multi-layered inter-company fund flows, Younger Poong has recognized proof suggesting that a whole lot of billions of received belonging to Korea Zinc have been routed via a number of entities and utilized in a method that allowed Choi and Ji to comprehend important private positive aspects, prompting the corporate to publicly elevate the difficulty.
The problem dates again to the autumn of 2019, when Choi’s private funding car, Yerigo No. 1 Funding Affiliation (Yerigo), of which Choi owns 99.9%, acquired Cheongho Comnet shares by buying treasury inventory off-market and subscribing to a third-party allotment. By these transactions, Yerigo secured a 6.2% stake and have become the third-largest shareholder.
On the time, Cheongho Comnet—managed by Ji and his associates—was experiencing extreme liquidity misery, together with declining efficiency, capital impairment, and sizable short-term liabilities. Yerigo’s funding into this distressed firm had no clear industrial rationale even then.
Just a few months later, on March 12, 2020, Cheongho Comnet bought its wholly owned subsidiary Sewon to SWNC, a newly included firm with solely 300 million received in paid-in capital and fewer than one month of working historical past, for 20 billion received.
In line with Cheongho Comnet’s 2019 monetary statements, Sewon’s web belongings totaled roughly 8 billion received and working revenue was merely 350 million received. Importantly, roughly 4.4 billion received—greater than half of its web belongings—consisted of mortgage receivables from the financially troubled Cheongho Comnet itself.
By any cheap valuation commonplace, Sewon’s sale worth was unjustifiably inflated.
A better overview of Korea Zinc’s regulatory disclosures reveals that the 20 billion received paid by SWNC corresponds precisely to the 20 billion received mortgage Korea Zinc prolonged throughout the identical interval, secured by Sewon shares. Solely SWNC may have offered Sewon shares as collateral on the time, strongly suggesting that Korea Zinc successfully financed SWNC’s acquisition.
In substance, Korea Zinc funded SWNC’s buy of Sewon at an inflated worth, regardless of SWNC having no unbiased monetary capability.
Instantly after this capital injection, Cheongho Comnet’s monetary situation appeared to enhance, and its share worth rose sharply—from the two,000 received vary to roughly 8,000 received by August 2020.
Throughout this surge, Yerigo (Choi’s funding entity) bought its whole stake, realizing a considerable revenue. Ji’s aspect can also be understood to have disposed of its holdings across the similar interval.
Thus, after Cheongho Comnet acquired funds successfully originating from Korea Zinc, its share worth elevated, and each Choi and Ji monetized their positions, yielding private monetary positive aspects.
Roughly one yr after the Sewon sale, on Jan. 20, 2021, the Arbitrage No. 1 Fund, managed by One Asia Companions, invested 25.5 billion received into SWNC. Nearly all of this fund’s capital had been contributed by Korea Zinc, which had invested roughly 600 billion received throughout a number of funds managed by One Asia Companions, making it the most important investor.
Regulatory filings additional state that SWNC repaid the 20 billion received mortgage to Korea Zinc between late 2020 and early 2021. Nevertheless, SWNC—being a one-month-old entity with 300 million received in capital—had no believable technique of producing over 20 billion received in working money circulation, nor have been there indicators of further fairness injections or borrowing.
This strongly means that the Arbitrage No. 1 Fund’s capital served because the precise compensation supply, making a sequence whereby:
1. Korea Zinc loaned 20 billion received to SWNC;
2. SWNC used it to buy Sewon at an inflated worth;
3. Cheongho Comnet’s funds improved by promoting Sewon to SWNC, and its share worth rose;
4. Choi and Ji bought their stakes in Cheongho Comnet for private acquire;
5. Korea Zinc later recontributed capital into the fund that SWNC then used to “repay” the mortgage.
That is, in impact, a round circulation of company funds, not a real mortgage compensation.
Younger Poong said, “Even primarily based solely on public disclosures, it’s evident that Korea Zinc’s company funds circulated via Cheongho Comnet and the One Asia Companions fund construction, finally flowing outward whereas the corporate assumed the monetary threat and Choi and Ji loved the positive aspects.”
Younger Poong additional emphasised, “It stays totally unclear what function Korea Zinc performed within the Sewon transaction, whether or not correct company decision-making procedures have been adopted, or how—if in any respect—the diverted funds have been recovered. These transactions don’t seem to represent regular industrial conduct. A full investigation into potential breaches of fiduciary responsibility and misappropriation of company belongings is critical.”
