Shinyoung Securities criticized the rationale behind MBK Partners' application for corporate rehabilitation for Homeplus through materials submitted to the National Assembly. MBK Partners, the largest shareholder of Homeplus, applied for rehabilitation 'proactively' citing potential issues arising from the company's credit rating downgrade affecting short-term financing.
Shinyoung Securities stated that there were no issues with fundraising based on examples of other corporations that experienced similar credit rating downgrades. As long as there were no issues with fundraising, it appears that Shinyoung Securities believes Homeplus had to do its utmost to fulfill its debt repayment obligations.
Shinyoung Securities and MBK Partners are also engaged in a truth battle regarding the fraudulent issuance of short-term bonds related to Homeplus.
According to materials submitted by Shinyoung Securities to the National Assembly on the 14th, the credit rating of Doosan Heavy Industries was changed from A3 to A3- in July 2020, similarly to Homeplus. A3- is just one notch above the speculative grade. However, this did not impede Doosan Heavy Industries from raising short-term funds.
Between February 2019, just before the credit rating downgrade, and June 2020, Doosan Heavy Industries raised 2.9379 trillion won by issuing short-term instruments, and right after the downgrade, from July 2020 to December 2021, it raised 2.8408 trillion won. Despite the downgrade in credit rating, there were no significant issues in receiving funds from the market.
Korea Line Corporation, the shipping subsidiary of SM Group, also faced a similar situation. In July 2018, Korea Line's credit rating also dropped from A3 to A3-, but before recovering to A3 in June 2021, it issued short-term instruments worth 1.208 trillion won. Considering that Korea Line had issued 294 billion won worth of bonds in the year leading up to the credit rating drop, there was little difference in the funds procured whether the rating was A3 or A3-.
Daeryun E&S (formerly Hanjin City Gas) also saw its credit rating drop from A1 to A3+ between 2013 and 2018. It issued 160 billion won worth of short-term bonds from April 2013 to May 2015 when it had an A1 rating and raised 1.4231 trillion won after it fell to A3+.
Based on such materials, Shinyoung Securities visited the National Assembly to explain that there is no correlation between credit ratings and market demand.
Of course, while a drop in credit rating may not affect receiving funds from investors, it does increase interest rates. The explanation given by MBK Partners was that rather than enduring high interest payments, it would be better to apply for rehabilitation and reduce its financial burden.
However, there are still concerns in the industry. A source from the financial investment sector said, "The application for rehabilitation is the last resort when a company has tried everything else and cannot proceed," adding that the term 'proactive' rehabilitation application itself sounds unusual. If a proactive application for rehabilitation is accepted to reduce debt burdens, it could be argued that credit rating evaluations become meaningless.
Shinyoung Securities' keen stance against MBK Partners stems from their entanglement in the Homeplus situation.
Shinyoung Securities is the manager of the asset-backed short-term bonds (ABSTB) based on Homeplus card payments, and there are suspicions that MBK Partners issued 82 billion won worth of ABSTB through Shinyoung Securities knowing about the credit rating downgrade that was the trigger for the corporate rehabilitation application. Issuing bonds while planning corporate rehabilitation can lead to fraud charges. In 2013, executives faced prison sentences for similar reasons during the Tongyang crisis.
On that day, the Homeplus executives held a press conference at their headquarters in Gangseo-gu, Seoul, stating they did not expect the credit rating to drop prior to the ABSTB issuance. Lee Seong-jin, head of Homeplus' finance management division, said, "We received a preliminary notice from the credit rating agency around 4 p.m. on the 25th of last month that the credit rating could drop, and requested a review on the following day, the 26th," adding, "The securitization of accounts payable was completed by the 24th in actuality, so it was issued regardless of the credit rating drop."
In this regard, Shinyoung Securities is considering filing a criminal complaint against MBK Partners for fraud concerning Homeplus. The Financial Supervisory Service has initiated an examination of Shinyoung Securities and the credit rating agencies (Korea Ratings and Korea Ratings) to clarify the timing of Homeplus's credit rating downgrade.