Breaking the Korea Discount: Private Equity’s Path to Progress
Private equity, often misunderstood as profit-driven and exploitative, is increasingly proving to be a pragmatic force for governance reform, prioritizing efficiency over ideology. Unlike state-driven economic models that entrench political influence in corporate decision-making, private equity operates with a singular focus—unlocking value and enhancing market competitiveness. In an era of rising geopolitical tensions and economic nationalism, where governments impose strategic controls over key industries, private equity presents an alternative path—one that bypasses political gridlock and delivers tangible financial and operational improvements. Nowhere is this dynamic more evident than in South Korea, where MBK Partners is spearheading one of the nation’s most controversial acquisition battles. The case of Korea Zinc—a cornerstone of global supply chains—offers a lens to examine how private equity can deliver results in a volatile and ideologically polarized global economy.
Korea Zinc is more than just a corporate entity; it is a lynchpin in global supply chains. Producing over 10% of the world’s refined zinc, the company supplies essential materials for semiconductors, electric vehicles, and renewable energy technologies. However, like many South Korean firms, it suffers from entrenched governance inefficiencies that contribute to the “Korea Discount,” a valuation gap of up to 30% compared to global peers, driven by opaque decision-making and family-dominated ownership structures.
South Korea’s corporate landscape has long been dominated by family-controlled conglomerates, or chaebols, which have historically prioritized legacy control over market-driven efficiency. This entrenched governance model contributes to the “Korea Discount,” where South Korean companies trade at significantly lower valuations than global peers due to opaque decision-making, cross-shareholding structures, and resistance to shareholder activism. Rather than reinvesting profits into innovation or long-term growth, many chaebols engage in defensive financial tactics to consolidate family control, often at the expense of shareholders.
For decades, Korea Zinc has exemplified the deep-rooted governance inefficiencies of South Korea’s family-controlled conglomerates (chaebols), prioritizing internal power struggles and opaque decision-making over shareholder value. The company has long been dominated by the Choi and Chang families, who have maintained tight control over leadership positions and strategic decision-making, often at the expense of efficiency and innovation. Internal family feuds—such as the ongoing power struggle between the Choi and Chang factions—have raised concerns about the firm’s stability and strategic direction, diverting focus away from long-term competitiveness.
Moreover, Korea Zinc’s board structure lacks true independence, with key executives being family members or close affiliates, limiting corporate accountability and external oversight. Investors have repeatedly criticized the firm’s reluctance to engage with external shareholders and its resistance to governance reforms. The company’s opaque capital allocation practices, including prioritizing cash hoarding over reinvestment in growth areas like zinc recycling, battery materials, and renewable energy, have further eroded investor confidence.
Korea Zinc’s recent $2 billion debt-financed share buyback, designed to counter MBK’s $1.5 billion bid for nearly 48% of the company, serves as just one example of its reactionary, defensive financial maneuvers aimed at preserving family control rather than enhancing corporate value. Critics argue that increasing Korea Zinc’s debt-to-equity ratio from 25% to approximately 40% undermines its financial flexibility and strategic priorities. While a 40% ratio is only slightly above the metals and mining industry average of 36%, shareholders accustomed to Korea Zinc’s historically conservative leverage view this shift as alarming.
Rather than investing in long-term innovation or shareholder returns, Korea Zinc has repeatedly focused on short-term tactics to consolidate family control, reinforcing the structural governance inefficiencies that contribute to the Korea Discount. The company’s history of using corporate funds for defensive strategies—such as stock buybacks and equity dilution to limit external influence—exemplifies the broader governance problems that plague family-run South Korean firms.
In contrast, private equity presents a straightforward solution: enforce governance reforms to unlock shareholder value. MBK’s intervention at Korea Zinc has already led to significant structural changes. Chairman Yun B. Choi resigned, and the company withdrew a $1.8 billion share issuance plan that was widely criticized for diluting shareholder equity. These changes highlight how private equity pressure can push family-controlled firms toward more transparent, globally competitive governance structures.
With stronger governance, Korea Zinc could shift from defensive financial tactics to strategic investment in growth areas such as zinc recycling, battery materials, and semiconductor-related industries, reinforcing South Korea’s role in critical global supply chains. By forcing accountability and capital efficiency, MBK’s intervention demonstrates that private equity can serve as a reformist force, correcting structural inefficiencies that have long plagued South Korea’s corporate landscape.
Another aspect in which private equity demonstrates its effectiveness is in capital allocation and long-term value creation. Unlike chaebols, which often prioritize family control over strategic reinvestment, private equity firms inject discipline and market-driven efficiency into corporate governance.
Critics often argue that private equity prioritizes short-term profits at the expense of long-term stability. However, MBK’s track record contradicts this assumption. For instance, the firm’s acquisition of Coway, South Korea’s leading water purification company, resulted in a 70% increase in market valuation through operational improvements and market expansion. A similar disciplined approach at Korea Zinc could replace defensive, debt-driven strategies with a sustainable growth framework, ensuring the company’s long-term competitiveness in global markets.
Concerns about MBK’s history of selling stakes to Chinese investors warrant scrutiny, particularly in the context of supply chain security and geopolitical competition. Given South Korea’s strategic role in the semiconductor and battery industries, ensuring domestic control over critical resources is a key concern for policymakers and investors alike. However, while vigilance is necessary, MBK’s transparent handling of the Korea Zinc acquisition suggests a commitment to aligning with South Korea’s national interests rather than simply maximizing resale value.
By enforcing governance reforms and improving operational efficiency, MBK ensures that Korea Zinc remains competitive and accessible to global markets, rather than being absorbed into state-backed consolidation strategies—a trend increasingly seen in China’s aggressive M&A policies. Unlike China’s state-driven approach, which often prioritizes control over innovation, private equity fosters market-driven efficiency, transparency, and shareholder accountability.
The Korea Zinc saga underscores a broader ideological battle: should corporate governance be dictated by market efficiency or political control? As geopolitical tensions between the U.S. and China intensify, control over critical supply chains is no longer just an economic issue—it is a matter of global competitiveness. Unlike state-backed economic models, which often prioritize national control over shareholder value and innovation, private equity offers a market-driven alternative that bypasses political constraints and delivers tangible economic progress. MBK Partners’ intervention exemplifies how private capital can serve as a powerful tool of economic statecraft, enforcing governance reforms that ideological governance models struggle to achieve.
At its core, private equity prioritizes efficiency over ideology. Rather than relying on state intervention to correct market inefficiencies, it operates as a self-correcting mechanism, disciplining management, enforcing accountability, and ensuring long-term competitiveness over entrenched legacy control. This case highlights private equity’s role as a reformer in markets plagued by inefficiency, where traditional governance models have failed.
South Korea’s chaebol-dominated corporate structures have long sustained the Korea Discount, discouraging global investors and limiting shareholder value. MBK’s intervention at Korea Zinc directly challenges these inefficiencies by replacing debt-driven, defensive maneuvers with disciplined, growth-oriented governance strategies. This shift is not just beneficial for Korea Zinc’s shareholders—it signals a broader transformation in South Korea’s corporate governance culture, reinforcing transparency, strategic reinvestment, and global competitiveness.
As global markets face increasing volatility, private equity’s role in economic statecraft will become indispensable. For South Korea, embracing governance reforms through market-driven mechanisms is not just about corporate efficiency—it is about securing long-term economic resilience in an increasingly fragmented global economy. Korea Zinc’s journey serves as a blueprint for how private capital can drive national competitiveness, proving that the path forward lies not in legacy or ideology, but in innovation, efficiency, and sustainable growth.