MBK Partners given preliminary notice of disciplinary action over Homeplus management: sources

This file photo shows a Homeplus store in Seoul, March 9. Yonhap

The financial regulator has preliminarily notified MBK Partners that the private equity fund will face a disciplinary action over its management of the wholly owned struggling retailer Homeplus, industry sources said Sunday.

The Financial Supervisory Service (FSS) informed MBK Partners on Friday of the proposed penalty, which includes a possible suspension from duties, they said. This marks the first time the watchdog has pursued such severe disciplinary action against a general partner (GP) of an institutional private equity fund.

MBK Partners acquired a 100 percent stake in Homeplus in 2015 from British retailer Tesco Plc for 7.2 trillion won ($4.9 billion). The retailer, however, became financially strapped due to a slump in the discount store industry and eventually entered court-led rehabilitation proceedings in March.

During its investigation, the FSS reportedly uncovered signs of improper business practices and violations of internal control obligations.

"Since there has never been a case of notifying a GP of a suspension, it remains to be seen how broadly the term 'duties' will be interpreted at the Financial Services Commission level," a financial industry source said.

The source added that this type of disciplinary action is effectively equivalent to a business suspension, meaning new operations are typically restricted.

Disciplinary measures for a GP range from an institutional caution to a warning, suspension of duties for up to six months and dismissal requests.

Once the FSS issues a preliminary notice, a disciplinary committee is usually convened within a month. Penalties above a suspension must be approved by the FSC.

The FSS has been looking into whether changes to the redemption terms of Homeplus' redeemable convertible preferred stock (RCPS) around the time of the credit downgrade may have harmed investors, including the National Pension Service (NPS), which originally invested 582.6 billion won through the fund.

Following the notification, MBK Partners said in a statement that the decision to change the redemption terms was made "to prevent a sudden credit rating downgrade of Homeplus and to preserve the company's corporate value."

The firm added that the move was a natural duty as the GP to protect the interests of all investors, including the NPS, and pledged to cooperate fully and provide a sincere explanation during the upcoming disciplinary review process.