MBK, Investors' 'OK' Sign Behind Sudden Corporate Rehabilitation Decision

MBK Fund Maintains High IRR on Homeplus Investment
Limited Partners Face No Burden Despite Homeplus Setback
Possibility of M&A During Rehabilitation Increases
Failure to Normalize Management May Impact Korea Zinc Dispute

The reason MBK Partners was able to swiftly decide on the corporate rehabilitation of Homeplus is understood to be due to the implicit consent of the fund’s limited partners (LPs). Since the fund invested in Homeplus has already achieved a considerable rate of return, the stance is that it is more beneficial to quickly cut off the 'painful finger' within the portfolio.

According to the investment banking (IB) industry on the 7th, the internal rate of return (IRR) of MBK’s 3rd blind fund invested in Homeplus is already reported to be in the high 20% range. MBK filed for Homeplus’s rehabilitation procedure at the Seoul District Rehabilitation Court on the 4th, and although the court immediately decided to commence the rehabilitation process on the same day?leading to some criticism of MBK’s professional management capabilities and investment skills?LPs have not been significantly shaken.

According to the industry, LPs had already written off all or part of their Homeplus investments over the past two years. This means the investors no longer expect additional profits from Homeplus. In fact, some LPs reportedly prefer MBK to exit Homeplus quickly, even if it means leaving it worthless. An IB industry insider said, "Some investors find it uncomfortable for Homeplus to remain in the portfolio when the fund has already made profits," adding, "They seem to want a quick exit from the Homeplus investment so that it is no longer repeatedly mentioned in internal reports or meetings."

The 3rd fund has already made substantial profits. It successfully exited investments in ING Life, Daesung Industrial Gases, Doosan Machine Tools, and the Japanese company Accordia Next Golf. Doosan Machine Tools, acquired 100% in 2016 for 1.13 trillion KRW, was sold to DN Automotive in 2022 for 2.4 trillion KRW, achieving more than double the return. Therefore, the failed investment in Homeplus is not a significant burden.

For this reason, there is also speculation that MBK might sell Homeplus as a whole during the rehabilitation process. Although mergers and acquisitions (M&A) of companies under rehabilitation are overseen by the court and require somewhat complex procedures, if normalization is difficult anyway, quickly exiting is also an option. TMON and WEMAKEPRICE also proceeded with M&A before the approval of rehabilitation plans right after starting rehabilitation procedures. Even the profitable business segment, the corporate supermarket (SSM) Homeplus Express, had its sale halted once rehabilitation began. Since company assets are frozen once rehabilitation starts, split sales are practically difficult, and even if sales occur after rehabilitation ends, it is hard to get a fair price.

A partner at a major domestic accounting firm explained, "If MBK considers Homeplus’s stock value to be zero, it can certainly proceed during the rehabilitation process," adding, "Homeplus’s assets and liabilities are almost equal, so MBK has nothing to gain, and since it is not an industry with growth potential, both the general partner (GP) and limited partners (LP) recognize it as a failed investment and may want to exit quickly." Regarding this, an MBK representative drew a line, saying, "We are currently focusing on normalizing Homeplus and are not yet considering a sale during rehabilitation."

While this does not burden the fund’s returns, there are forecasts that the ripple effects on other matters could be significant. This is because MBK, while engaged in a management rights dispute with Choi Yoon-beom, chairman of Korea Zinc, has argued that Korea Zinc requires more professional management capabilities. MBK has pointed out that since Chairman Choi took office in 2019, about 1.3 trillion KRW was invested in private equity funds such as One Asia Partners, with whom he has personal ties, or in areas unrelated to the core business, inefficiently using company capital. A financial investment industry official expressed concern, saying, "If MBK exits without normalizing Homeplus, the rationale MBK has used to criticize Chairman Choi could collapse," adding, "While the Homeplus investment issue might be smoothed over, it could negatively affect the larger management rights dispute at Korea Zinc."