Hello, I am Jun Ji-hye, a reporter at The Korea Times. I primarily cover financial authorities and write articles on a wide range of topics related to finance and capital markets. If you have any information to share, feel free to email me at jjh@koreatimes.co.kr, and I will review it carefully. I am committed to always doing my best to communicate with readers through high-quality articles.
MBK denies prior knowledge of Homeplus credit downgrade, involvement in bonds issuance
A woman enters a Homeplus store in Seoul, March 20. Yonhap
By Jun Ji-hye
Rebuttal follows financial watchdog's claim of concrete evidence suggesting unfair trading
MBK Partners and Homeplus did not anticipate the retailer’s credit rating downgrade, nor did they prepare for any rehabilitation procedures in advance, they said Thursday.
The two also said they were not involved in the controversial issuance, sale and resale of asset-backed short-term bonds (ABSTB) tied to Homeplus’ card receivables.
The rebuttal came hours after Lee Bok-hyun, governor of the Financial Supervisory Service, the country’s financial watchdog, said during a media briefing that his agency had secured concrete evidence suggesting that MBK was aware of Homeplus’ credit rating downgrade in advance and had planned to file for corporate rehabilitation long before the actual filing on March 4.
Earlier this week, the financial authorities notified the prosecution about alleged unfair trading by key executives at Homeplus and its largest shareholder, MBK, through a fast-track process for an expedited investigation.
In a joint press release, the private equity firm and the supermarket chain stated that they had taken proactive steps and filed for rehabilitation procedures to prevent Homeplus from going bankrupt, as it became evident that obtaining working capital from the market would be challenging due to the unexpected credit rating downgrade.
“At about 4:00 p.m. on Feb. 25, Homeplus received the first notice from Korea Ratings regarding the planned credit rating downgrade. Immediately upon receiving the notice, Homeplus began preparing a formal objection,” they said in the release.
The following day, they said, Homeplus presented credit enhancement measures to Korea Ratings, including offering a credit line of up to 100 billion won ($70 million) and amending the redemption terms of the preferred shares.
"Had Homeplus anticipated the downgrade, such measures would logically have been presented before the scheduled regular credit evaluation that month," they said. "The fact that these actions were taken only after receiving the downgrade notice on Feb. 25 strongly supports the conclusion that the downgrade was not foreseen."
Kim Kwang-il, a partner at MBK Partners and co-CEO of Homeplus, speaks during a session on the retailer's entry into court-led rehabilitation at the National Assembly, March 18. Joint Press Corps
Despite these efforts, the downgrade was confirmed on the afternoon of Feb. 27.
Then, on Feb. 28, Homeplus was informed by Shin Young Securities, the issuer of the ABSTB, that under the downgraded rating, Homeplus would only be able to secure about 40 percent of the short-term working capital it had previously accessed.
As a result, Homeplus determined that the downgrade would hinder its ability to secure liquidity and lead to a severe cash shortfall by May. Accordingly, on the afternoon of Feb. 28, the company began preparing the necessary documentation to file for rehabilitation proceedings.
They also provided an explanation regarding the accusation that they had continued to issue the financial bonds despite anticipating the downgrade, thereby exposing investors to the risk of losing principal.
They noted that the ABSTB was a financial investment product issued by a special purpose company (SPC) created by Shin Young Securities. This SPC acquired trade receivables — credit card payment claims — from card companies based on transactions with Homeplus and issued the ABSTB to investors.
"Homeplus was neither involved in nor did it participate in the SPC’s acquisition of receivables, the issuance of ABSTBs or their resale. These transactions were solely handled by Shin Young Securities and related market participants,” they said.
“In fact, for the Feb. 25 issuance, Homeplus confirmed the issuance size and transaction terms with Shin Young the day before, as it had done in the past. This confirmation took place one day before Homeplus received the preliminary notice of its credit rating downgrade from Korea Ratings. As scheduled, Shin Young proceeded with the issuance on Feb. 25.”