Lee Bok-hyun "Homeplus MBK Suspicion, Investigation Should Be Expanded"... Also Points Out LBO Method

Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), on the 18th, regarding the Homeplus incident, announced an expansion of inspections, stating, "We will conduct very strict inspections and investigations on the MBK case." He also shared concerns about the ongoing criticism surrounding the leveraged buyout (LBO) method used by MBK Partners when acquiring Homeplus.

On the same day, during the National Assembly's Legislation and Judiciary Committee plenary session, in response to a question from Kim Nam-geun, a member of the Democratic Party of Korea, about the need to review the LBO method, Governor Lee said, "We are taking this very seriously," and added, "Currently, only securities firms and credit rating agencies are under inspection, but I think we need to expand the scope of the inspection." He further stated, "An internal review is necessary for expanding the inspection targets," and promised, "We will complete the review in a short time and report back."

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Earlier, the FSS had begun inspections targeting Shin Young Securities, the securities firm underwriting commercial papers (CP) such as corporate notes, and credit rating agencies including Korea Credit Rating and Korea Ratings, to verify whether Homeplus proceeded with bond issuance despite prior knowledge of credit rating downgrades and corporate rehabilitation plans. The FSS also hinted at expanding the inspection to include the major shareholder, MBK Partners.

The LBO method, which was brought up in the National Assembly that day, refers to acquiring a target company using borrowed funds secured by the assets of the company itself. It is a method actively used by private equity funds, including MBK Partners. Regarding this, Governor Lee stated, "I have publicly expressed concerns several times about financial capital dominating industrial capital," and he expressed worries, saying, "While private equity funds can play a positive role, our society needs to consider the side effects that arise when institutional private equity funds recover their investments around seven years later."

Governor Lee also spoke about MBK Partners' repayment plans for the principal of Homeplus-issued CP, short-term bonds, and asset-backed securities (ABSTB - asset-backed electronic short-term bonds) based on credit card receivables. He said, "There are repeated talks about principal repayment related to the rehabilitation plan, but honestly, even if the rehabilitation plan is approved, if principal repayment occurs during a prolonged cash flow shortage, in reality, in severe cases, half or at least one-third of the amount could be lost," he pointed out. He then strongly criticized, "I am taking very seriously the fact that Kim Byung-joo, Chairman of MBK Partners, did not appear today."

On the same day, Kim Byung-hwan, Chairman of the Financial Services Commission, also commented on the LBO, saying, "Although it is a commonly used method for financing mergers and acquisitions (M&A), this Homeplus incident has highlighted several issues," and added, "We will review the cases and examine foreign systems to consider necessary institutional improvements." He also mentioned that they would look into whether there are areas for improvement in the system to enhance the transparency of private equity funds.

This content was produced with the assistance of AI translation services.