Homeplus, MBK Partners HQs raided over controversial short-term debt sale
Prosecutors carried out a search and seizure operation at the headquarters of Korea's second-largest supermarket chain, Homeplus, and its largest shareholder, private equity firm MBK Partners, on Monday, as part of an investigation into alleged fraud and violations of the Capital Market Act.
The Seoul Central District Prosecutors' Office announced that officials were dispatched to secure financial records in order to trace the flow of funds as Homeplus' financial health began to deteriorate after MBK Partners acquired the supermarket in 2015, culminating in losses of approximately 200 billion won ($138 million) in 2023.
The retailer decided to apply to enter a rehabilitation program at the Seoul Bankruptcy Court on March 4.
The search and seizure operation was conducted on suspicion of soliciting bond investments while deceiving investors, according to the prosecution.
Prosecutors suspect that both Homeplus and its major shareholder, MBK Partners, had advance knowledge of the retailer's credit rating downgrade, but they continued to issue a large amount of short-term bonds and abruptly filed for rehabilitation, transferring the losses to investors and putting some 19,000 employees, 6,000 suppliers and partners in jeopardy.
On Feb. 28, the Korea Investors Service downgraded Homeplus' credit rating from A3 to A3-, citing weak profitability, excessive debt and increasing uncertainty about the company's mid- to long-term competitiveness.
Investigators believe Homeplus and MBK were informed about the rating downgrade at least by Feb. 25, when they received a preliminary notice from the credit agency.
Despite knowing the company's rating was likely to decline, Homeplus issued asset-backed short-term bonds worth 82.9 billion won through Shinyoung Securities on Feb. 25.
The prosecution reportedly claimed that selling bonds to investors in anticipation of corporate rehabilitation could be considered fraud, as such rehabilitation puts a hold on the financial procedures related to the debt, including interest payments.
Four stock brokerage houses, including Shinyoung Securities, filed criminal complaints against Homeplus executives, alleging fraud for selling bonds while being aware of the rating downgrade and the upcoming corporate rehabilitation on April 1.
The Financial Supervisory Service previously announced in a briefing on April 24 that it had secured concrete evidence that Homeplus and MBK Partners had been aware of the downgrade and planned to file for corporate rehabilitation for quite some time.
South Korea's financial watchdog conducted an inspection into potential irregularities in the Homeplus scandal starting in mid-March, transferring records related to the controversial short-term debt sale to the prosecution on April 21.
Prosecutors are reportedly scheduled to investigate MBK Partners Chairman Kim Byung-joo, MBK Partners Vice Chairman and Homeplus co-CEO Kim Kwang-il, and Homeplus President and co-CEO Joh Joo-yun as suspects. Detailed information about the investigation process has yet to be announced.
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