Jun Ji-hye, a reporter at the finance desk of The Korea Times, focuses primarily on economic policy and government agencies, mainly covering the Ministry of Finance and Economy, the Ministry of Budget and Planning, the National Tax Service and the Korea Customs Service. She previously covered financial authorities, including the Financial Services Commission and the Financial Supervisory Service, and earlier worked on the political, city and business desks, reporting on a wide range of issues.
MBK cites credit enhancement proposals to refute foreknowledge of Homeplus' downgrade
Kim Kwang-il, a partner at MBK Partners and co-CEO of Homeplus, speaks during a session at the National Assembly, March 18, on the retailer's entry into court-led rehabilitation. Joint Press Corps
By Jun Ji-hye
MBK Partners proposed credit enhancement measures during Homeplus’ credit rating appeal after the retailer received a preliminary downgrade notice from a credit rating agency on Feb. 25, according to investment banking industry officials, Tuesday.
The measures included offering a credit line of up to 100 billion won ($70 million) and amending the redemption terms of the preferred shares.
MBK, the largest shareholder of the supermarket chain, claimed that the additional measures submitted during the appeal serve as evidence that it did not have prior knowledge of the downgrade before it was confirmed on Feb. 28, and therefore its filing for Homeplus' court-led rehabilitation was not premeditated.
This argument came in response to accusations that MBK was aware of the downgrade before filing for rehabilitation on March 4. Critics accused the private equity firm of continuing to issue short-term financial bonds despite anticipating the downgrade, thereby putting investors at risk of losing their principal.
According to industry officials, Korea Ratings informed Homeplus around 4 p.m. on Feb. 25 that its short-term credit rating would be lowered from A3 to A3- following a regular assessment.
The credit rating agency then asked whether Homeplus wished to file an appeal. The retailer responded quickly, submitting its appeal request the next morning on Feb. 26.
To proceed with a credit rating appeal, there must be material changes or new developments. In response, MBK presented two main measures in an effort to prevent the downgrade.
One measure was changing the redemption terms of the redeemable convertible preferred shares (RCPS).
Previously, both MBK and Homeplus had the right to request redemption, but the terms were revised so that only Homeplus could exercise this right. This change would allow the 1.1 trillion won worth of RCPS to be classified as equity rather than debt, effectively lowering Homeplus’ debt ratio and helping to maintain its credit rating.
Another strategy involved MBK setting up a 100 billion won credit line for Homeplus, similar to an overdraft account. This would allow the retailer to draw funds up to the agreed limit, with MBK securing the necessary capital through its own credit resources.
"If we had received any indication of a downgrade in advance, we would have implemented these measures earlier, making our submission during the Feb. 26 appeal unnecessary,” an MBK official said. “We were committed to maintaining the credit rating and keeping the company operational, as demonstrated by our offer of a 100 billion won credit line."
Financial Services Commission Vice Chairman Kim So-young speaks during a press conference at Government Complex Seoul, Monday. Courtesy of Financial Services Commission
The Financial Services Commission (FSC), the country’s top financial regulator, recently referred MBK and Homeplus management to the prosecution for an expedited investigation.
The key issue in the investigation is whether MBK had prior knowledge of the possibility of a downgrade before the first credit rating downgrade notice on Feb. 25.
If MBK was aware of the downgrade in advance and still issued bonds or other financial instruments without disclosing the potential downgrade while preparing for rehabilitation, it could face charges of fraudulent and unfair trading.
During a press conference, Monday, FSC Vice Chairman Kim So-young said, "We will respond to the issue strictly in accordance with the law and procedures."