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What 'severe' penalty could be imposed on MBK Partners?
Rep. Min Byoung-dug, center, of the ruling Democratic Party of Korea, holds a press conference at the National Assembly in Seoul, Thursday, urging MBK Partners to take an active stance in resolving the controversy surrounding Homeplus' application for a court-led corporate rehabilitation program. Yonhap
By Jun Ji-hye
Attention is growing over the level of penalties MBK Partners may face, after the Financial Supervisory Service (FSS) sent the private equity firm, which controls Homeplus, an advance notice of “severe” disciplinary action amid ongoing controversy over the retailer’s application for a court-led corporate rehabilitation program, according to financial industry officials Monday.
The financial watchdog had initially planned to wait for the prosecution to conclude its investigation before taking any action, but its stance shifted after new Governor Lee Chan-jin took office in August. Lee, a former public interest lawyer with ties to progressive civic groups, directed FSS officials to reopen the case, emphasizing that “strict measures are necessary” against the firm.
It marks the first time a general partner (GP) of an institutional private equity fund has faced severe sanctions from the financial authorities.
Under the Capital Markets Act, sanctions against a GP range from lower to higher levels — institutional caution, institutional warning, suspension of duties for up to six months and a recommendation for dismissal. Sanctions at the institutional warning level or above are classified as severe penalties.
Following a preliminary notice, a disciplinary review committee is typically convened within a month. Sanctions involving suspension or dismissal require final approval from the Financial Services Commission (FSC), the nation’s top financial regulator.
“Because this is unprecedented, if a suspension of duties is imposed, questions such as the scope of duties affected and whether new business activities will be restricted will have to be clarified at the FSC stage,” an FSS official said.
Homeplus filed for corporate rehabilitation with the Seoul Bankruptcy Court on March 4 after a credit rating downgrade, prompting criticism that the private equity firm had recklessly placed the nation’s second-largest supermarket chain under rehabilitation after acquiring it through a leveraged buyout.
A Homeplus store in central Seoul, March 4 / Newsis
The FSS’ decision to push ahead with sanctions while the prosecution’s investigation is still ongoing is seen as highly unusual and widely viewed as signaling the authorities’ determination to tighten oversight of private equity funds in the wake of the Homeplus controversy.
A key question is whether the FSS can prove that MBK harmed the interests of its limited partners (LPs), including the National Pension Service (NPS).
The watchdog has been examining whether changes made to the redemption terms of Homeplus’ redeemable convertible preferred shares (RCPS) at the time of the credit rating downgrade — changes that were favorable to the retailer — undermined the interests of the NPS and other LPs, which had invested around 582.6 billion won ($394 million).
According to government insiders, the FSS has conducted a detailed legal review to establish a basis for sanctions, as there is no precedent for imposing heavy penalties on a GP managing an institutional private equity fund.
In addition, because the case had been referred to the prosecution and disciplinary procedures were initially paused, the decision to pursue strong sanctions under new leadership may raise questions about the thoroughness and integrity of the review.
MBK, for its part, said it “will fully cooperate and provide all necessary explanations throughout the forthcoming disciplinary review and related proceedings.”