MBK Partners chairman to use personal assets to salvage Homeplus suppliers

Kim Kwang-il, left, a partner at MBK Partners and co-CEO of Homeplus, speaks during a press conference at the retailer's headquarters in Gangseo District, Seoul, Friday, while co-CEO Joh Joo-yun looks on. Yonhap

MBK Partners announced Sunday that its Chairman Michael Byungju Kim will spend his own money to pay off the suppliers of Homeplus, the country's No. 2 supermarket chain, which recently began a court-led rehabilitation.

"The chairman will provide his personal assets for Homeplus' suppliers, many of them small businesses, to ensure that they can promptly receive payment (in correspondence with their business transactions)," MBK Partners said.

MBK Partners Chairman Michael Byungju Kim / Yonhap

The Seoul-headquartered private equity (PE) firm said such financial assistance will be made as it is committed to "fulfilling its social responsibility related to Homeplus' rehabilitation."

The announcement came after MBK Partners was criticized for not acting fully responsibly to rescue Homeplus as its largest shareholder after acquiring a full stake in 2015.

Market observers estimated that at least 1 trillion won ($687.52 million) is needed to noramalize operations of the retailer.

The PE firm previously drew a line concerning the possibility of Kim using his wealth to handle the incident after Homeplus filed for court-led rehabilitation.

On Friday, the company said that the retailer's decision to file for rehabilitation was made "urgently" after its credit rating downgrade was finalized, denying allegations that the filing was premeditated.

The comments were in response to growing suspicions that Homeplus issuing short-term financial bonds came despite anticipating the downgrade. The controversy has intensified as the rehabilitation process raises the likelihood of a moratorium on financial debt repayment, putting investors in these bonds at risk of losing their principal.

“We did not prepare for the corporate rehabilitation filing in advance. The decision was made urgently after the credit downgrade was finalized,” Kim Kwang-il, a partner at MBK Partners and co-CEO of Homeplus, said during a press conference. “Homeplus cannot determine whether asset-backed short-term bonds (ABSTBs) are trade payables or financial debt. Once we provide the court with accurate details of the transaction, the court will make the judgment.”

Kim Kwang-il, left, a partner at MBK Partners and co-CEO of Homeplus, and co-CEO Joh Joo-yun, bow during a press conference at the retailer's headquarters in Gangseo District, Seoul, Friday. Yonhap

Homeplus management had described the credit rating agencies’ decision, made on Feb. 28, to downgrade the firm’s corporate bond rating from A3 to A3- as an “unexpected situation” and abruptly filed for corporate rehabilitation with the Seoul Bankruptcy Court on March 4, as March 3 was a public holiday in Korea.

However, according to a press release issued Thursday by Homeplus, the company was informed on Feb. 25 by a credit rating agency official that its rating was likely to be downgraded. That official also inquired whether the retailer intended to request a reconsideration.

"Despite our request for reconsideration, we were officially notified late on Feb. 27 that the rating had been downgraded by one notch," the release stated.

This statement has fueled suspicions that Homeplus was aware of the impending downgrade as early as Feb. 25, before receiving the final notification.

Nevertheless, the company issued 82 billion won ($56 million) worth of ABSTBs on that day to secure funding.

As of March 4, when the corporate rehabilitation was filed, the outstanding balance of commercial papers and short-term bonds at Homeplus stood at 188 billion won. Since these are unsecured financial instruments with lower repayment priority, investor losses appear to be inevitable.

Knowingly selling short-term financial bonds to retail investors despite anticipating a credit rating downgrade not only invites criticism but could also lead to legal consequences.

In response to these allegations, the Financial Supervisory Service, the country’s financial watchdog, has launched an investigation into Shinyoung Securities and two credit rating agencies.

Investors who had purchased Homeplus' securitized short-term bonds stage a protest in front of the company’s headquarters in Gangseo District, Seoul, Friday, demanding that their investment be recognized as trade receivables following the retailer's entry into corporate rehabilitation proceedings. Yonhap

During the press conference, Kim stressed that the rehabilitation filing was an unavoidable decision, as it was the only way to prevent Homeplus from going bankrupt and to keep the company operating normally.

“Preventing Homeplus from going bankrupt was our top priority, as bankruptcy would have led to a rapid collapse. So we set aside shareholder rights and are fully cooperating with the rehabilitation process,” he said.

Homeplus co-CEO Joh Joo-yun, who was also present at the conference, apologized to all stakeholders, including suppliers, tenants and creditors, affected by the rehabilitation process.

“We will take full responsibility and repay all debts to ensure that no one suffers losses due to this process,” she said.

She stated the company had completed the repayment of 340 billion won in trade payables by Thursday and assured that most debts owed to small business owners would be settled soon.

Joh said the firm will go through procedures such as creditor verification, asset assessment and corporate valuation before submitting its rehabilitation plan by June 3.