Park Han-sol reports on Korea's financial regulators, along with fintech and insurance. She previously wrote about the art world, from biennales and exhibitions to fairs and auctions, with a focus on Seoul and the figures shaping the scene. Before joining The Korea Times, she spent a year at ABC News' Seoul bureau, contributing to coverage of major Asia-Pacific events.
Can MBK's last-minute Homeplus rescue mitigate regulatory sanctions?
A Homeplus store in Seoul remains closed with its entrance blocked by rows of shopping carts, Monday. Yonhap
By Park Han-sol
As the financial regulator weighs sanctions against MBK Partners over its handling of the Homeplus acquisition, attention is turning to whether the private equity firm’s last-minute effort to keep the retailer afloat could influence the severity of the penalty.
The Financial Services Commission (FSC) has recently begun reviewing disciplinary measures proposed by the Financial Supervisory Service (FSS) on July 2.
The FSS recommended a three-month suspension on MBK’s management of the Homeplus buyout fund, along with an institutional warning against MBK in its capacity as the general partner managing the private equity fund. If upheld, the warning would mark the first major regulatory sanction imposed on a domestic private equity fund manager.
An institutional warning could affect MBK’s ability to raise capital from major limited partners, including the National Pension Service (NPS).
At the center of the case is the firm’s treatment of redeemable convertible preferred shares (RCPS) — a type of preferred stock that can be redeemed by investors under certain conditions — issued during its acquisition of Homeplus.
The FSS alleges that the company amended the terms of those securities in a move that improved Homeplus’ financial position but reduced the likelihood that investors, including NPS, would fully recover their investments. The watchdog concluded that the changes constituted an unfair business practice under the Capital Markets Act and reflected shortcomings in MBK’s internal controls.
MBK defended its position, describing the changes to the RCPS terms as “a rational decision” because at the time, improving Homeplus’ balance sheet and preventing a credit-rating downgrade were “the most urgent priorities in order to keep the company viable and protect investors’ interests.”
The changes were made in accordance with the procedures prescribed under the Capital Markets Act and related regulations and were ultimately intended to improve investors’ prospects of recovering their investments, it added.
“We expect that, through the forthcoming explanation process, both the urgency of the market conditions at the time and the reasonableness of the financial judgments made will be sufficiently demonstrated.”
Could Homeplus rescue efforts affect outcome?
Some industry observers note that MBK’s recent efforts to rescue Homeplus could become one factor in determining the final penalty.
On July 16, Homeplus secured a 200 billion won ($135 million) debtor-in-possession (DIP) loan — the minimum amount the Seoul Bankruptcy Court said was needed to keep the retailer’s restructuring alive.
The breakthrough came after MBK and its chairman, Michael ByungJu Kim, agreed to provide joint personal guarantees covering the full amount of the loan, prompting Homeplus’ largest creditor, Meritz Financial Group, to approve the financing.
That funding allowed Homeplus to appeal the court’s earlier decision terminating its rehabilitation proceedings. The Seoul Bankruptcy Court subsequently reversed that ruling and extended the deadline for creditors to vote on the retailer's restructuring plan until Sept. 4.
Although the seriousness of the alleged misconduct remains the primary consideration, financial authorities generally also consider mitigating factors, such as efforts to limit investor losses, voluntary corrective measures and post-incident remedial actions.
Hwang Suk-jin, a professor at Dongguk University’s Graduate School of International Affairs and Information, said MBK’s recent efforts were unlikely to completely overturn what authorities regard as a violation of the Capital Markets Act, particularly as the case is widely seen as a landmark test of oversight for the private equity industry.
“However, the personal guarantees for the DIP loan demonstrate that MBK took responsibility and made a good-faith effort to address the fallout,” Hwang said. “While those actions would not eliminate the grounds for sanctions, they could still weigh in MBK’s favor when the regulator determines the appropriate level of discipline. That could translate into a lighter penalty for some executives, a shorter suspension or a narrower scope of disciplinary measures.”
The FSC is expected to decide on the sanctions as early as September. If the proposed disciplinary measures are upheld, industry observers expect MBK to challenge the decision through administrative litigation.