This article was displayed on the ChosunBiz MoneyMove (MM) site at 11:08 a.m. on Jan. 12, 2026.
The pretrial detention warrant hearing for Chairman Kim Byung-ju, Vice Chairman Kim Kwang-il, and other top executives at MBK Partners is one day away. The start time for the hearing was moved up by as much as 3 hours and 30 minutes from the originally scheduled 1:30 p.m., and Kim and others are making thorough preparations to seek dismissal. It was confirmed that the PowerPoint (PPT) alone runs to about 100 slides.
Prosecutors are said to have listed, in addition to alleged fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Financial Investment Services and Capital Markets Act, a bookkeeping fraud charge totaling 1 trillion won in the detention warrant. The thrust is that they committed the crime of fraudulent rehabilitation by filing for corporate rehabilitation with falsified financial statements. To defend against this, MBK Partners must prove the validity of reclassifying Homeplus Co.'s redeemable convertible preferred shares (RCPS) from liability to equity. In addition to showing that Homeplus Co. held the redemption right, they are expected to have to prove that dividend payments were not mandatory.
◇ Issues are complex, requiring extensive defense arguments... prosecutors also spent nine months
According to the investment banking (IB) industry and according to legal sources on the 12th, Chairman Kim, Vice Chairman Kim, MBK Partners Executive Vice President Kim Jeong-hwan, and Homeplus Co. Executive Managing Director and Chief Financial Officer (CFO) Lee Seong-jin will undergo the warrant hearing at 10 a.m. on the 13th before Senior Judge Park Jeong-ho, who is in charge of warrants, at the Seoul Central District Court.
According to legal community sources, the PPT prepared by Kim and others runs to about 100 slides. Given the complexity of the issues, it appears they needed to lay out a dense defense. The decision to move up the start time of the hearing is seen in the same context.
The Seoul Central District Prosecutors' Office has investigated the Homeplus Co. case for about nine months since it was assigned in Apr. last year. The main charges are fraud under the Criminal Act and fraudulent unfair trading under the Financial Investment Services and Capital Markets Act. Prosecutors argue that Kim and others issued bonds while anticipating a downgrade in Homeplus Co.'s credit rating and corporate rehabilitation, intentionally deceiving investors and causing losses.
A former high-ranking prosecutor said, "Some in the legal community are saying that, as it nears a year since the investigation began, the warrant request is part of wrapping things up," but added, "I understand the Seoul Central District Prosecutors' Office put significant effort into the investigation."
Prosecutors are expected to actively argue, in addition to the suspicion that Kim and others intended to deceive investors, that there is a risk of destroying evidence. Along with this, an additional charge applied to the three—Vice Chairman Kim, Executive Vice President Kim, and Executive Managing Director Lee—is accounting fraud in the 1 trillion won range. They allegedly artificially improved key indicators in the financial statements to create an "appearance" that the financial crisis was less severe, and used it to create a favorable environment for fundraising and rehabilitation proceedings.
Prosecutors in particular are said to view as noncompliant with accounting standards Homeplus Co.'s reclassification of RCPS from liability to equity to lower its debt ratio. They also suspect signs that Homeplus Co. inflated asset values through land revaluation.
◇ RCPS redemption is Homeplus Co.'s "right"... MBK says reclassification to equity is valid
The crux of prosecutors' argument alleging accounting fraud at Homeplus Co. is that the RCPS issued when it received outside investment in the past were essentially liabilities but were improperly converted to equity.
To understand this, it is necessary to look at the structure under which Homeplus Co. raised investment in 2015. At the time, MBK Partners set up a special purpose company (SPC) called Korea Retail Investment to issue 700 billion won in RCPS as part of the acquisition of Homeplus Co. They created project funds (MBK 2015-1 and -2), injected 700 billion won into Korea Retail Investment in RCPS form, and Korea Retail Investment then invested in Homeplus Co. again via RCPS in a two-tier structure. The National Pension Service provided most of the 700 billion won in project fund capital, 582.6 billion won.
RCPS investors are generally paid returns through dividends. It is almost the same concept as interest. For Homeplus Co.'s RCPS as well, dividends were paid over four years from 2015 to 2018. Homeplus Co. paid dividends to Korea Retail Investment, Korea Retail Investment then paid dividends to the project funds, and the dividend payments ultimately flowed up to fund investors including the National Pension Service.
Investors were to receive dividends equal to 9% of principal each year. First, they received 3% per year as dividends, and 6% was paid as cumulative dividends at maturity (Oct. 2020) or on the redemption date. In other words, because the 6% payment was deferred, it was added to principal to produce a compound-interest effect by design.
This investment structure changed as of Feb. 26 last year. Korea Retail Investment transferred the "redemption right" of the RCPS to Homeplus Co. The "redemption claim right" held by Korea Retail Investment thus turned into Homeplus Co.'s redemption right.
This means the nature of the RCPS contract between Korea Retail Investment and Homeplus Co. changed. Under K-IFRS, RCPS are generally classified as liabilities if the redemption claim right rests with investors. Conversely, if the issuer can decide at its discretion whether to redeem, there is a greater possibility of recognizing them as equity.
Regarding the reason for changing this RCPS to equity at the time, MBK Partners said it was "to lower the debt ratio." In any case, the RCPS could be redeemed only after the acquisition financing for Homeplus Co. was fully repaid and the company had distributable income. But since 2019, Homeplus Co. had posted net losses, had no distributable income, and was unable to repay the acquisition financing due to deteriorating finances. MBK Partners therefore judged that RCPS redemption would be difficult and took this step to at least lower the debt ratio.
However, the only RCPS that changed from liability to equity were those issued by Homeplus Co. The RCPS of Korea Retail Investment, in which the National Pension Service invested, remained liabilities, so MBK Partners did not need prior consent from the National Pension Service.
◇ If dividends are mandatory, "change in conversion price → common share count unfixed → recognize as liability"
The biggest divergence between prosecutors and MBK Partners lies in how to view the redemption right.
MBK Partners argues that because the redemption right lies with the issuer, Homeplus Co., it should be classified as equity. Homeplus Co.'s audit report specifies: "Because the company retains discretion over redemption of the company's RCPS, there is no contractual obligation to deliver cash or other financial assets, and it is a non-derivative financial instrument with a contractual obligation to deliver a fixed number of the company's own equity instruments at a specified conversion price."
Prosecutors, by contrast, are said to be taking issue with the dividend contract of the RCPS. Even if the redemption right lies with the issuer, Homeplus Co., the structure requires cumulative payment of dividends to investors, giving it a very strong liability nature. In other words, as long as the obligation to "pay dividends" remains in force, it should effectively be viewed as a liability, the argument goes.
In the legal community, the wording of the contract on cumulative dividends is seen as one of the key points that will determine whether the charges stand. MBK Partners argues that the clause is closer to "if distributable income arises in the future and the company decides to pay dividends, unpaid amounts will be cumulated and paid first." If this interpretation is accepted, there is a strong case for classifying the RCPS as equity because the issuer, Homeplus Co., has discretion to avoid paying cash.
On the other hand, if unpaid amounts are automatically added to the redemption amount or remain as a contractual obligation that must be settled in cash under certain conditions or at a certain time, the argument that RCPS should be treated as a liability, as prosecutors claim, could gain force.
If Homeplus Co. is required to pay dividends to investors, the conversion price of the RCPS would inevitably change depending on whether dividends are paid. In that case, because the number of common shares to be converted is not fixed, RCPS should be viewed as a liability, according to prosecutors' logic.