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Korea Herald
28-04-2025
- Business
- Korea Herald
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.
Korea Herald
04-03-2025
- Business
- Korea Herald
Homeplus granted corporate rehabilitation amid credit woes
The Seoul Bankruptcy Court announced Tuesday that it had approved the corporate rehabilitation request filed by South Korean supermarket chain Homeplus, initiating prompt proceedings just 11 hours after the filing. On Tuesday morning, Homeplus announced that it had filed for corporate rehabilitation as a preemptive measure to address potential funding issues following its recent credit rating downgrade. The court's decision to approve the proceedings was based on the assessment that a funding shortage could arise around May if the financial structure did not improve, despite the chain not being in default, due to the downgrade of its commercial paper credit rating. Homeplus will be able to proceed with the rehabilitation process while its normal operations continue without disruption. The deadline for submitting the rehabilitation plan is June 3. The court also ruled to uphold the company's current co-CEO system during the preemptive restructuring process, led by CEO Joh Ju-yeon and MBK Partners Vice Chairman Kim Kwang-il. In 2015, private equity fund MBK Partners acquired Homeplus for 7.2 trillion won ($4.9 billion). Homeplus's rehabilitation filing came as its improved sales and debt ratio were not adequately reflected in its credit evaluation, the company stated, leading Korea Investors Service to downgrade its credit rating from A3 to A3- on Friday. The credit agency attributed the rating cut to weakened profitability, high financial burdens and uncertainty surrounding mid- to long-term business competitiveness. 'We applied for rehabilitation proceedings to ease short-term debt repayment, as the lowered credit rating could potentially cause funding issues,' an official from Homeplus said, emphasizing that the move is only a preventive measure. As of January, Homeplus reported a debt ratio of 462 percent and annual sales of 7.04 trillion won, reflecting a 1,506 percent improvement in its debt ratio and a 2.8 percent increase in sales compared to the previous year. Although annual revenue had been on a four-year decline, dropping from 7.65 trillion won in 2018 to 6.48 trillion won in 2021, sales figures have trended upward in the past three years, reaching 6.6 trillion won in 2022 and 6.93 trillion won in 2023. In 2023, the company posted operating losses of 199.42 billion won, narrowing the 260.18 billion won loss from the year before. Excluding lease liabilities that account for all rent during the remaining contract period, Homeplus's actual financial debt, including operating funds borrowing, stands at about 2 trillion won. With over 4.7 trillion won in real estate assets, the company expects a smooth restructuring process with financial creditors under the rehabilitation plan. The company stated that deferring financial debt through rehabilitation will improve future cash flow by reducing financial burdens. Since most of its sales are cash-based, the company generates a surplus of about 100 billion won within just one or two months. While bond redemptions will be suspended during the rehabilitation proceedings, general business dealings with partner companies will be settled in full, and employee salaries will continue as usual, the company explained. 'Supermarket chains have faced challenges over the past decade, including regulatory pressures, the post-COVID shift to online shopping, and the rise of e-commerce. Despite this, we have achieved sales growth for three consecutive years and remain committed to improving business performance,' the company official said.
