The Financial Supervisory Service discovered signs that private equity fund MBK Partners issued bonds despite knowing about Homeplus's plan to apply for rehabilitation procedures. MBK Partners, the major shareholder of Homeplus, applied for corporate rehabilitation procedures considering that financing would become challenging as the company's credit rating fell and claimed that the bond issuance prior to that point was a regular process. It indicates that this statement is false, and if it concludes that MBK Partners sold bonds to investors while keeping in mind the application for rehabilitation, some officials could face prison sentences.
On the 1st, Ham Yong-il, deputy director of the Financial Supervisory Service’s Capital Market Division, held a briefing on current issues at the main office in Yeouido, Seoul, and noted that there had been significant progress, stating, "(In the MBK Partners inspection results) signs were discovered that differ from the previous explanations regarding the recognition of the possibility of a credit rating downgrade and the circumstances surrounding the corporate rehabilitation application."
This is the result of the inspection that began on MBK Partners on the 19th of last month. Recently, the Financial Supervisory Service extended the inspection period for MBK Partners and increased the number of inspection personnel, demonstrating its commitment to deploy all resources to prove the allegations of fraudulent transactions.
MBK Partners maintained that it issued 82 billion won in Homeplus card payment-based liquidity electronic short-term bonds (ABSTB) without knowing about the credit rating downgrade that served as the basis for the corporate rehabilitation application. The downgrade (A3 to A3-) occurred on February 28, and MBK Partners applied for rehabilitation on the following business day, the 4th of last month.
Last month, MBK Partners told the media, "Like other corporations, we have consistently issued (bills and securities) regularly, including on the 25th of each month, to secure operating funds," adding that "the rehabilitation procedures were not anticipated in advance."
However, on that day, Deputy Director Ham stated that MBK Partners lied. He emphasized, "Signs and evidence were discovered that differ from what MBK Partners stated regarding when they became aware of the (corporate rehabilitation procedures) and when they applied for them."
However, the allegations have not been confirmed yet, as the inspection is still ongoing. Deputy Director Ham explained, "It is highly likely that MBK Partners had recognized (the corporate rehabilitation procedures or the credit rating downgrade) before the dates they mentioned," adding, "The inspection is a process of confirming the allegations, and it cannot be said that it has been 'confirmed' today."
He added, "From our perspective, there are clearly different aspects in (MBK Partners' statements and the facts)."
The Financial Supervisory Service also discovered the possibility of accounting treatment violations regarding Homeplus. Deputy Director Ham stated, "This week, the accounting audit for Homeplus has been changed to oversight, and we are scrutinizing it more closely." The Financial Supervisory Service's accounting-related inspections are divided into assessments and oversight, with oversight representing a more serious stage of violation.
The Financial Supervisory Service raised its criticism regarding MBK Partners' irresponsibility. Deputy Director Ham said, "Chairman Kim Byung-joo of MBK Partners has made statements about grants from his personal assets and treating asset-backed securities as trade receivables, but the authenticity and effectiveness are questionable."
According to Deputy Director Ham, Homeplus announced that it would classify the purchase liability-backed securities as trade receivables and fully repay them, but in reality, it only reflected that in its rehabilitation plan. He remarked, "This has confused the market and investors," adding, "While they fail to pay rent for some stores, they remain consistent in vague expressions to minimize damage without specific explanations."
Finally, Deputy Director Ham stated, "Homeplus must now show responsible behavior regarding its promised full repayment and grants from major shareholders," and "The Financial Supervisory Service will thoroughly investigate various suspicions and take strict measures against illegal activities."
However, he refrained from commenting on the redeemable convertible preferred shares (RCPS) in which the National Pension Service invested.
The RCPS in question is structured to flow from the National Pension Service to Korea Retail Investment (SPC) and then to Homeplus, but Homeplus's conversion of SPC's RCPS from liability to equity has raised controversy. Converting to equity significantly reduces the likelihood of recovering funds, and the key issue is whether the National Pension Service agreed to it. So far, it is reported that the National Pension Service was unaware of the accounting treatment changes and that MBK Partners handled them independently.
Deputy Director Ham stated, "The National Pension Service is an institutional investor, not a general investor," suggesting that "There must have been discussions between them (the National Pension Service and MBK Partners)."