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MBK legal woes raise uncertainty over Homeplus restructuring, Korea Zinc control
MBK Partners Chairman Michael ByungJu Kim speaks during a National Assembly audit in Seoul, Oct. 14. Korea Times photo by Jung Da-bin
By Jun Ji-hye
Detention hearing for chairman scheduled for next Tuesday
Key issues involving MBK Partners, including the court-led Homeplus rehabilitation proceedings and the ongoing management control dispute at Korea Zinc, have fallen into uncertainty after prosecutors sought arrest warrants for four senior MBK executives, including Chairman Michael ByungJu Kim, over controversy surrounding Homeplus’ rehabilitation filing, industry officials said Thursday.
The Seoul Central District Prosecutors’ Office requested arrest warrants for Chairman Kim, MBK Vice Chairman and Homeplus CEO Kim Kwang-il, MBK Vice President Kim Jeong-hwan and Homeplus Chief Financial Officer Lee Sung-jin, Wednesday, on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Capital Markets Act.
A detention hearing for Chairman Kim at the Seoul Central District Court is scheduled for next Tuesday.
The individuals are considered central figures within the private equity firm. Chairman Kim serves as its ultimate decision-maker, while Vice Chairman Kim has been overseeing both matters in his dual roles as CEO of Homeplus and a non-standing outside director at Korea Zinc.
They are suspected of having issued a substantial amount of asset-backed short-term bonds, despite foreseeing a downgrade in Homeplus’ credit rating, before abruptly filing for court rehabilitation, allegedly causing losses to investors.
Korea Ratings lowered the credit rating of the country’s second-largest supermarket chain from A3 to A3- on Feb. 28 last year. Homeplus applied for rehabilitation with the Seoul Bankruptcy Court just four days later, on March 4.
As allegations involving moral hazard and fraudulent unfair trading are viewed as particularly damaging in rehabilitation proceedings, it is widely believed that Homeplus’ sale schedule could be pushed back.
Delays are also anticipated in the planned spin-off sale of Homeplus Express, its smaller supermarket division, as well as in efforts to secure debtor-in-possession financing.
“If Vice Chairman Kim is detained, it could further slow a rehabilitation process that has already been delayed,” an industry source said. “Even if there is buyer interest, ongoing controversy surrounding Homeplus and MBK Partners would inevitably make potential bidders more cautious.”
The management control dispute at Korea Zinc, which has lasted for more than a year, is also likely to be affected. MBK joined forces with Young Poong in a bid to oust Choi Yun-beom, chairman of the zinc smelting company.
Choi’s allies have called MBK a predatory private equity firm, and the filing of arrest warrants is likely to reinforce their argument that control of a key national industry should not be entrusted to organizations that fail to uphold their social responsibilities.
Attention is also turning to how key shareholders, including the National Pension Service (NPS) and major conglomerates, will respond ahead of shareholders' meeting for the zinc smelter in March. Given the NPS' emphasis on market transparency, siding with executives facing allegations of fraud and violations of the Capital Markets Act is unlikely and would place a significant burden on the public pension fund.
MBK denied all allegations, saying prosecutors had misconstrued the controlling shareholder’s efforts to rescue Homeplus through court rehabilitation.
“We completely deny all charges contained in the arrest warrant request, which run counter to the facts and are rooted in misunderstandings,” MBK said in a statement. “We will fully demonstrate in court that the prosecution’s claims lack legal and factual grounds.”
The firm added that Chairman Kim and other executives had cooperated fully with the investigation, arguing that the decision to seek arrest warrants was "excessive and unjustified."