"FSS to Investigate Homeplus Allegations, Begins Inspection of Shin Young Securities and Credit Rating Agencies"

The Financial Supervisory Service (FSS) has launched an inspection of Shin Young Securities and two credit rating agencies in connection with the Homeplus incident. This is to verify whether Homeplus and financial companies proceeded with bond issuance despite prior knowledge of the plan to file for corporate rehabilitation proceedings (court receivership) and the credit rating downgrade.

On the 13th, the FSS announced, "To verify various suspicions and facts, we have started inspections this afternoon at 4 PM on Shin Young Securities, the securities underwriter of commercial paper (CP), and the credit rating agencies Korea Ratings and Korea Investors Service." The Financial Investment Inspection Division 3 is responsible for Shin Young Securities, while the Financial Investment Inspection Division 1 is in charge of the two credit rating agencies.

Homeplus’s short-term bond credit rating was downgraded from 'A3' to 'A3-' on the 28th of last month, and it filed for court receivership around midnight on the 4th of this month. Since then, Homeplus has claimed that it was not aware of the credit rating downgrade beforehand. However, through a press release this morning, it stated, "On the afternoon of the 25th of last month, around 4 PM, we received preliminary rating results from a credit rating agency’s staff member indicating that the credit rating was likely to be downgraded by one notch, contrary to expectations at the time."

The 25th of last month mentioned by Homeplus was the final day that a special purpose company (SPC) related to Homeplus issued asset-backed electronic short-term bonds (ABSTB). This is the background for suspicions that funds were raised despite prior knowledge of the rating downgrade. Homeplus denies these suspicions, stating that the related securitization was approved the day before and that the decision to file for court receivership was made after the downgrade. However, Shin Young Securities claims that Homeplus was fully aware beforehand and still issued the ABSTB, and is even considering criminal charges.

The FSS’s inspection began shortly after remarks by FSS Governor Lee Bok-hyun on the same day. Governor Lee predicted during a back briefing following the morning’s "Open Forum for Building Governance for Corporate and Shareholder Coexistence," that "an inspection within the minimum necessary scope will be inevitable."

Regarding the controversy over losses suffered by individual investors related to Homeplus’s ABSTB securitization, he said, "Primarily, we are already collecting materials to verify facts from financial companies. We believe that as a supervisory authority, we must take necessary actions concerning the retail investors affected during the sale of commercial paper backed by Homeplus card receivables and the sales and leaseback process."

The total amount of Homeplus’s ABSTB, for which principal and interest repayments have been suspended due to this incident, is estimated at 401.9 billion KRW. A significant portion of this is believed to have been sold to individual investors.

Meanwhile, the National Assembly’s Political Affairs Committee plans to hold an urgent inquiry on the ‘Homeplus and MBK Partners Incident’ on the 18th, summoning five witnesses including Kim Byung-joo, Chairman of MBK Partners, and Cho Joo-yeon, Co-CEO of Homeplus.