South Korea’s top financial regulator is intensifying its investigation into Young Poong amid growing concerns over the company’s environmental violations and potential improper collusion with private equity firm MBK Partners, as tensions rise in its continuing dispute with Korea Zinc.

Lee Bok-hyun, head of the Financial Supervisory Service, said Thursday that the agency had launched a probe into Young Poong after uncovering accounting irregularities, including unrecognized impairment losses, in relation to the company's environmental issues.

“We have initiated an on-site probe and are treating the matter with the utmost seriousness,” Lee told local reporters, adding, “We will make a prompt decision regarding the accounting irregularities.”

Last month, the FSS began an accounting review of Korea Zinc, the world’s largest zinc smelter, and its major shareholder Young Poong to investigate allegations of liabilities provisions and investment impairments raised during their management dispute.

While reviews typically take three to four months, they escalate into a mandatory audit if accounting violations are detected. The transition to an audit investigation for Young Poong came just a month and a half after the review was initiated.

According to the FSS disclosure system, Young Poong has accumulated 132.32 million won ($94,800) in environmental provisions as of the third quarter. Despite the company attributing its 20.3 billion won operating loss to "over 100 billion won in annual environmental investments," this year’s provisions fall significantly short, raising doubts about the validity of its explanation linking the provisions to its deteriorating financial condition.

With the investigation upgraded to a formal audit, authorities will scrutinize the company’s management and financials. Any regulatory violations could lead to sanctions or legal actions, potentially undermining Young Poong’s efforts to overtake Korea Zinc.

Lee also expressed concern on Thursday about the partnership between Young Poong and MBK Partners in their joint attempt to seize control over Korea Zinc, highlighting possible risks coming from the collusion between financial and industrial forces.

"We must consider the potential long-term erosion of shareholder value or business sustainability when financial capital, typically operating on a 5-10 year horizon, takes control of industrial capitals that require a longer outlook of 20-30 years," Lee noted.

"While in the past our concerns focused on the negative effects of industrial capital acquiring financial capital, we must now also consider the potential drawbacks of financial capital dominating industrial capital," Lee added, shedding new light on the issue and raising the possibility that the MBK-Young Poong coalition could undermine the traditionally maintained separation between finance and industry.

This is the first time the FSS governor has expressed direct concern over MBK's attempted takeover of Korea Zinc. Private equity firms often sell off business units or key assets of an acquired company to recoup their investment, or seek returns through high dividends, and Lee's remarks highlight the potential for such actions if MBK were to take control of Korea Zinc.

Young Poong and MBK are estimated to control nearly 39 percent of Korea Zinc, surpassing the roughly 35 percent held by Chairman Choi Yun-beom and his allies. The two sides remain locked in a market battle to boost their stakes, with a shareholders' meeting expected in January.