South Korea’s Korea Mine Rehabilitation and Mineral Resources Corporation (KOMIR), a state-owned energy and natural resources company, failed to sell its stakes in two entities, according to people familiar with the matter. The entities are Xi’an Maxon-Kores New Materials, a Chinese rare earth producer, and SeAH M&S, a molybdenum producer jointly founded by Korea and Japan.
KOMIR’s recent attempt to sell a 49% stake in Xi’an Maxon-Kores New Materials and a 14.69% stake in SeAH M&S failed to generate interest, with no bidders participating in the latest auction, according to sources in the investment banking sector on Dec. 2. The company had structured the sales process as a progressive deal, or auction-style bid, which increases the final sale price through competitive bidding.
Industry observers pointed to China’s new regulations as a factor hindering the sale. China recently tightened export controls on rare earths, introduced caps on rare earth production, and required tracking systems for all rare earth products to counter U.S. trade war efforts. Such regulations have discouraged Korean firms from acquiring minority stakes in Chinese rare earth producers.
SeAH M&S faced different challenges due to a shareholder agreement with its majority owner, SeAH Holdings, which owns 83.92% of the company. The deal prohibits rival companies from acquiring stakes in SeAH M&S, preventing strategic investors from participating in the bid. With no immediate exit strategy, such as an initial public offering (IPO) or a controlling stake on offer, the minority stake failed to attract financial investors.
Given the lack of buyers, the most feasible option now appears to be existing shareholders who may be interested in buying the stakes in the two entities. Seojun and SeAH Holdings, each of Xi’an Maxon-Kores New Materials and SeAH M&S’ majority shareholders, hold preferential purchasing rights. SeAH Holdings is expected to utilize SeAH Technology Investment, its corporate venture capital arm, to acquire the shares. The shareholders’ agreement allows SeAH Holdings to coordinate the purchase through a third party and notify the seller accordingly.
“Seojun does not have an incentive to acquire KOMIR’s stake in Xi’an Maxon-Kores New Materials, but SeAH Group could use this acquisition as an opportunity to recover funds through dividends from SeAH M&S, a company with liquid assets of around 450 billion won ($320 million) and annual sales nearing 1 trillion won,” said an industry insider.
KOMIR is currently under severe financial strain, with capital erosion amounting to 2.6 trillion won ($2 billion). The company has focused on divesting non-core assets to improve its financial structure.
The company plans to conduct one more round of bidding for Xi’an Maxon-Kores New Materials before switching to direct negotiations. KOMIR has already transitioned the sales process for SeAH M&S to private sales, with discussions underway with potential buyers. If the sales fail again, KOMIR plans to negotiate with existing shareholders to exercise their preferential rights.
