As Homeplus, the second-largest supermarket in South Korea, filed for corporate rehabilitation, losses for individual investors who purchased related financial products, such as corporate bonds, are expected. The Financial Supervisory Service is taking stock of the situation. If the damage from Homeplus expands in the future, it may be used as foundational data for incomplete sales inspections.
According to the financial investment industry on the 10th, the FSS sent a letter to each securities firm, requesting that they submit the amounts sold to individuals for Homeplus-related commercial paper (CP), corporate bonds, short-term electronic bonds (STB), and asset-backed short-term electronic bonds (ABSTB) by the 12th. They also instructed asset management companies to report the amount of related products they hold.
An STB is a short-term bond issued electronically with a maturity of less than one year. ABSTB is a product that splits the maturity into three-month intervals by rolling over the maturity of an STB through a securities firm's special purpose corporation (SPC).
Currently, the financial sector estimates that financial bonds issued based on Homeplus' credit card receivables amount to 600 billion won. Credit card receivables refer to the debts that arise when Homeplus pays its suppliers using credit cards.
The FSS is concerned about the possibility of incomplete sales by securities firms. They worry that investors were not adequately informed about the investment risks when sold at the branches. One investor claimed, 'H Securities sold me Homeplus bonds with a high interest rate, indicating that there wouldn't be any issues within the three-month maturity.'
In particular, ABSTB has a short maturity, which raises the possibility of incomplete sales in a manner similar to the aforementioned. ABSTB typically splits a one-year maturity product into four segments of three months each. When the first round investor reaches maturity, the second round investor's funds are used, the second round funds are moved to the third round, and the final fourth round recoups original and interest payments from the debtor. From the investor's perspective, as long as there aren't any issues with the company within the three months of their invested round, they can secure their principal and interest with the funds from the next round's investors.
The FSS is also looking into the fact that Homeplus issued CP on the 25th of last month, just before it applied for corporate rehabilitation. If they issued CP knowing that they would file for corporate rehabilitation, it could be considered fraud. In 2013, Tongyang Group secretly issued 1.3 trillion won worth of CP and corporate bonds through its affiliate, Tongyang Securities, while concealing its bankruptcy risk. The then-chairman of Tongyang Group served seven years in prison related to this matter.
However, MBK Partners, Homeplus' largest shareholder, denied any connection between the CP issuance and the corporate rehabilitation application. An MBK Partners representative stated, 'Similar to other corporations, we have regularly issued CP on the 25th of each month to secure operating funds,' adding that 'the rehabilitation process was not an anticipated situation.'
MBK Partners indicated that Homeplus' application for corporate rehabilitation arose due to Korea Ratings and Korea Composite Stock Price Index lowering the company's credit rating from A3 to A3- at the end of last month. They stated that this was a proactive measure due to concerns over short-term liquidity deterioration. A3- is just above the speculative grade, making it effectively a level where institutional investors do not invest.
A representative of the FSS noted, 'Given the high interest from the market, we have requested cooperation from securities firms and asset management companies to ascertain the exposure.'