This article was published on March 6, 2025, at 3:39 p.m. on ChosunBiz MoneyMove site.
Homeplus, one of the three largest hypermarkets in the country, has applied for corporate rehabilitation due to poor performance, and it is reported that not only the National Pension Service but also Saemaul Geumgo, the Government Employees Pension Fund, and the National Federation of Fisheries Cooperatives are at risk of losing over 100 billion won in investments.
According to investment banking industry sources on the 6th, the three institutions have initiated an investigation into the investment status related to Homeplus. They participated in the investment in the form of redeemable convertible preferred shares (RCPS) when MBK Partners, a private equity fund manager, acquired Homeplus in 2015. The structure flows from MBK and institutional investors to Korea Retail Investment (SPC) and then to Homeplus.
At that time, the National Pension Service invested the most money at 600 billion won, followed by Saemaul Geumgo with 70 billion won, and the remaining amount was covered by the Government Employees Pension Fund and the National Federation of Fisheries Cooperatives. An investment banking industry official noted, "To provide acquisition financing to MBK Partners at that time, they had to participate in the RCPS investment."
Typically, acquisition financing is considered a safe investment from the perspective of institutional investors. Because the risk of loss is low and the scrutiny is not stringent, it is easier to meet alternative investment quotas. Institutional investors sometimes invest in relatively riskier RCPS or common stock to secure a portion of the acquisition financing investment.
The problem is that Homeplus entered corporate rehabilitation proceedings on the 4th. The court is expected to prioritize the list of creditors, with the order of repayment being 'secured creditors - unsecured creditors - RCPS investors issued by the special purpose corporation (SPC) - institutional investors that invested in the SPC.'
In the meantime, Korea Retail Investment, an SPC, has converted the RCPS issued against Homeplus into a common preferred stock (CPS), further increasing the potential losses for institutional investors. This choice seems to have been made by MBK to reduce Homeplus's liability ratio. While RCPS are counted as liabilities due to their repayment obligation, CPS are classified as capital since they are preferred stocks.
Another investment banking industry official stated, "From the perspective of institutional investors, including the National Pension Service, even though the risk of loss may increase, they likely had no choice but to agree, as not separating would make it more difficult to sell Homeplus."
While institutional investors own the RCPS for the SPC, it is still premature to feel secure. The fact that there is little difference between RCPS and CPS in a rehabilitation situation seems to be the background for this choice.
According to court precedents, the claim for the repayment of RCPS must be backed by distributable income. If there is no distributable income, it is regarded as lacking the conditions for exercise. A legal industry official explained, "Most debtors who have applied for corporate rehabilitation are in a state of exceeding debts, so there is no distributable income," adding, "RCPS are recognized as shares rather than rehabilitation claims."
The recoverability of the RCPS is likely to be determined according to a study by Samil Accounting Corporation. The research report is expected to include Homeplus's financial status, operational value, and details related to assets and liabilities. According to credit rating agencies such as Korea Ratings, as of November last year, Homeplus's total assets amounted to 9.0644 trillion won, and total liabilities were 8.4635 trillion won. Since most assets are real estate, the liabilities may exceed the assets depending on this appraisal.
A Saemaul Geumgo official stated, "We estimate that Homeplus's net worth as of January is 1.6 trillion won," adding, "It is early to consider the potential losses on the RCPS, but as the situation changes, the asset evaluation may also change, so we are monitoring the situation."
A Government Employees Pension Fund official noted, "We are continuously monitoring the relevant issues," and said, "We plan to discuss further with the accounting firm at the end of the year." A National Federation of Fisheries Cooperatives official responded, "We are currently assessing the situation."
☞Redeemable convertible preferred shares (RCPS) means
It is a type of stock that owns the right to request repayment of the invested capital like a bond, the right to convert preferred shares into common stock, and the preferential rights over common stock in the distribution of remaining assets or dividends during company liquidation.