National Pension Service: "Half of Homeplus Investment Already Recovered... Never Agreed to Capital Conversion"

No Agreement to Change RCPS Issuance Terms
3.131 Trillion KRW Already Recovered from 6.151 Trillion KRW Investment

The National Pension Service (NPS) announced that it has already recovered about half of the approximately 600 billion KRW in Redeemable Convertible Preferred Shares (RCPS) it invested in Homeplus through dividends and other means. It also firmly denied rumors that the NPS agreed last month to change the redemption terms to allow Homeplus, which has entered corporate rehabilitation proceedings, to convert the RCPS from liabilities to equity.

On the 7th, the NPS stated, "We have never agreed to change the issuance conditions of Homeplus RCPS," and explained, "The conditions of the RCPS invested by the NPS have not changed compared to when the investment was made." This was a direct denial of reports that Homeplus, which recently entered corporate rehabilitation due to its inability to bear massive debt and interest expenses, changed the redemption terms to convert the RCPS from liabilities to equity in accounting.

RCPS is a type of preferred stock that holds redemption rights (the right to demand repayment of the investment principal from a certain time), conversion rights (the right to convert preferred shares into common shares), and dividend priority. Under domestic accounting standards, RCPS with redemption rights held by investors is classified as a liability. It is only classified as equity in accounting when the investor exercises the conversion rights to convert it into common shares. However, exercising the conversion rights pushes the debt repayment priority from subordinated to junior.

As the NPS clarified, the RCPS has not been converted into common shares. Nevertheless, various questions have been raised about how it could be recognized as equity. Some interpret that although the NPS did not convert the RCPS, it might have chosen to transfer the redemption rights to Homeplus. The logic is that since the debtor holds the right to demand redemption, it can be classified as equity rather than a liability. Homeplus explained, "The RCPS whose conditions were revised to allow Homeplus to change it from liabilities to equity in accounting was issued by Korea Retail Investment, not the NPS."

Meanwhile, the NPS also refuted views that the RCPS investment might end in failure. It emphasized that out of the 615.1 billion KRW invested in 2015 (582.6 billion KRW in RCPS and 29.5 billion KRW in blind fund common shares), it has already recovered 313.1 billion KRW through refinancing and dividend receipts. An official from the National Pension Service said, "We will closely monitor the rehabilitation process and progress and do our best to recover the investment."