Korea Zinc shares skyrocket after buybacks in tender offer

Shares in Korea Zinc Inc. soared on Thursday, a day after completing its buybacks, driven by institutional investors covering shorts on the stock and speculative demand. 

Its rally was contrary to market expectations its share price would plummet after an MBK Partners-led group won a large enough stake to take control of the company in a tender offer.

Its share price skyrocketed by its daily limit of 30% to finish at 1,138,000 won ($825). The closing price is 28% higher than Korea Zinc's buyback offer of 890,000 won per share. In the morning, it briefly tumbled to as low as 856,000 won.

The world's largest lead and zinc smelter has repurchased its shares from the market since early this month together with Bain Capital to counter a takeover bid by a consortium of MBK Partners and Young Poong Corp. 

But the MBK-led group already secured a 38.47% stake in Korea Zinc by Oct. 14, enough to exercise management rights for the smelter and at a lower price than the company's buyback offer.

It was not immediately disclosed how many shares Korea Zinc has bought back from the market over the past three weeks. It will disclose its buyback results on Oct. 29.

Analysts said Korea Zinc drew speculative investors betting on higher volatility on a decrease in its free float.

Securities companies shorting the stock chased them higher in a hurry to return their borrowed shares.

Korea Zinc, led by Chairman Choi Yun-birm, aimed to buy back shares equivalent to a 20% stake and then retire them. 

But if the acceptance ratio reaches as high as 20% as hoped, it will end up boosting the MBK-led group's stake with voting rights. Companies are not allowed to exercise shareholder rights for treasury stocks.
 
Meanwhile, Korea Zinc has bumped up its stake in Young Poong Precision Corp., which holds a casting vote in the management dispute for Korea Zinc, to 70%.

Its share price staged a rebound to soar by its daily limit of 30% to 26,000 won by market close on Thursday. But it is still lower than Korea Zinc's buyback offer of 35,000 won.

Write to Jong-Kwan Park at pjk@hankyung.com

Yeonhee Kim edited this article.