May 16, 2025
SEOUL – A recent streak of mergers and acquisitions led by private equity firms has intensified the debate over foreign-owned companies investing in Korean businesses, raising concerns about the possible outflow of key strategic technologies
At the center of the controversy is a recent revision to the Enforcement Decree of the Act on Prevention of Divulgence and Protection of Industrial Technology. The updated regulation, set to take effect on July 22, does not apply “foreign investment” provisions to Korean-registered private equity firms, even if they are effectively controlled by foreign nationals.
Previously, the government had considered including such firms under the scope of foreign investors. If enacted, this would have required them to seek prior approval from the Ministry of Trade, Industry and Energy before investing in local companies holding “core strategic technologies.”
In an 2022 Industrial Technology Protection Committee meeting, former Industry Minister Lee Chang-yang noted that “M&As led by local private equity firms, owned by foreigners, are tricky cases to handle.”
Yet the proposal was excluded from the final version of the revised decree.
Experts point out that the revision has a loophole, as it does not define the nationality of a company by de facto control.
“It is not that all foreign nationals are likely to leak core technologies to other countries. That would be an exaggeration, almost xenophobic,” said a professor who specializes in technology security and wished to remain anonymous.
“But without tighter regulations on foreign ownership, foreign capital could indirectly acquire key technologies through domestic entities or funds. The legal loophole provides grounds for the overseas leakage of key technologies.”
A recent series of M&A deals led by such firms has brought more attention to the revised regulation and its shortcomings. Of the “big four” PE firms in Korea, two are headed by foreign nationals.
Korea Zinc, the world’s largest refined zinc smelter, has been engaged in a power struggle against private equity giant MBK Partners since a buyout attempt first made in September. In a defensive effort to maintain control of the company, Korea Zinc called made issue over the nationality of the PE firm’s chief Michael Byung-ju Kim, who is a US national.
To fend off the MBK camp, Korea Zinc acquired approval from the government to designate its high-nickel precursor manufacturing process as a core strategic technology, which would mean government approval was required for an acquisition of the smelter by a foreign company.
Though the designation was unlikely to block off MBK’s takeover attempt, as MBK is not registered as a foreign company, it was seen as a move to pressure the rival by highlighting the potential of security threats.
On a similar note, chip-to-energy conglomerate SK Group is considering selling its controlling stake in SK Siltron, a semiconductor wafer producer. Local private equity house, Hahn & Co., is named as a strong contender, given its close ties with the conglomerate. The PE firm has executed multiple deals with SK Group in recent years.
Yet again, the nationality of its chief has been raised. While Hahn & Co. is a Korea-registered private equity firm, its Chief Executive Officer Scott Sang-won Hahn is a US national.
With SK Siltron’s growing formula for crystals used in chip manufacturing designated a core strategic technology, a cross-border sell-off of the affiliate would require approval from the government.
Hahn & Co., a Korea-domiciled company, would be qualified without governmental approval. Industry views that Hahn’s nationality will not be a hurdle for the buyout firm in a legal manner. But the pressure of a potential security breach could affect a deal, despite the firm’s big store of capital and its strong chip network.
“When it comes to M&A deals on institutions with key strategic technology, the focus should rather be on how the given technology would be managed throughout the years,” an official from a local private equity firm said.
“A safety net is necessary, but the idea of raising guards against a company just because of a foreign national chief is outdated.”