The financial authorities sent an inspection opinion letter to MBK Partners, a private equity fund (PEF) operator, regarding the Homeplus situation. Following a prosecution investigation, the financial authorities have initiated additional field surveys and sanction procedures, increasing pressure on MBK Partners.
According to the financial investment industry on the 31st, the financial authorities have started the sanction process by sending an inspection opinion letter to MBK Partners. This inspection opinion letter is reported to have been sent based on the FSS's field inspection of MBK Partners conducted last March.
Currently, the prosecution is investigating allegations that Homeplus misled investors while concealing its corporate rehabilitation and issued short-term bonds worth 600 billion won. Thus, the financial authorities' sanctions are expected to focus on MBK Partners' unhealthy business practices. The Capital Markets Act prohibits the unhealthy business practices of general partners (GPs) managing institution-only private equity funds like MBK Partners.
The inspection opinion letter sent by the financial authorities reportedly includes unhealthy business practices related to the treatment of redeemable convertible preferred stock (RCPS) issued by MBK Partners during the acquisition process of Homeplus. Previously, Homeplus had changed the redemption conditions of its RCPS to favor itself at the time of credit rating downgrade. Accordingly, the FSS is investigating whether there has been any infringement of the interests of fund investors (LPs) like the National Pension Service, which invested 582.6 billion won.
RCPS are preferred stocks that come with the right for investors to claim the repayment of principal or convert to common stocks after a specified period. Korea Retail Investment, a special purpose company (SPC) established by MBK Partners to acquire Homeplus, transferred the redemption rights of the RCPS to Homeplus in February, resulting in a significant improvement in Homeplus's liability ratio, while concerns have been raised that the possibility of recovering the RCPS invested by the National Pension Service has diminished.
The FSS is expected to schedule a sanction review committee session after reviewing the explanations and responses from MBK Partners regarding the inspection opinion letter. If it receives sanctions greater than a warning, there is a high likelihood of suffering disadvantages in the blind fund investment projects of domestic institutional investors, including the National Pension Service.
In this regard, MBK Partners stated, "We agreed to change the terms of the RCPS issuance to protect investor interests, including preventing the drop in Homeplus's credit rating and maintaining the value of the equity in Homeplus held by Korea Retail Investments. We did not anticipate a decline in Homeplus's credit rating and did not prepare in advance for corporate rehabilitation."
They also noted, "We are not the issuer or seller of the underlying notes" and stated, "We will provide a full explanation during the financial authorities' inspection process."