Korea Ratings Downgrades Credit Rating, Securities Firms Also Say "Homeplus Must Have Known in Advance" (Comprehensive)

Korea Ratings, which downgraded Homeplus's credit rating, claimed that Homeplus and its major shareholder MBK Partners likely anticipated the downgrade in advance. Shin Young Securities, the lead underwriter, also reaffirmed its previous stance that Homeplus issued bonds despite knowing the possibility of a downgrade. This contradicts Homeplus's claim that it had no choice but to opt for corporate rehabilitation procedures (court receivership) due to the sudden downgrade.

On the 18th, at the National Assembly's Standing Committee on Economy's plenary session, during the urgent inquiry regarding Homeplus, MBK Partners, and Sambutogeon, Cho Ju-yeon, Co-CEO of Homeplus (from the right), Kim Kwang-il, Vice Chairman of MBK Partners and Co-CEO of Homeplus, and other summoned witnesses are listening to the lawmakers' questions. Photo by Yonhap News.

On the 18th, Kim Ki-beom, CEO of Korea Ratings, appeared at the National Assembly's Legislation and Judiciary Committee plenary session and responded to Min Byung-duk, a member of the Democratic Party of Korea, who asked, "During the review process, wasn't Homeplus able to anticipate the credit rating downgrade?" Kim replied, "It seems they could have predicted it internally."

When asked if the downgrade could be reversed upon reconsideration after being publicly announced, Kim answered, "It is unlikely." He also confirmed, "Is it correct to say that Homeplus already knew about the downgrade on February 25?" by saying, "Yes." He explained that the review of Homeplus's credit rating took about two weeks.

Homeplus applied for court receivership abruptly in the early hours of March 4, after its short-term bond credit rating was downgraded from ‘A3’ to ‘A3-’ on February 28. Since then, Homeplus has claimed it was unaware of the downgrade beforehand. However, it was confirmed that the Homeplus-related Special Purpose Company (SPC) received preliminary rating results from the credit rating agency's staff on the afternoon of February 25, the last day ABSTB was issued, sparking controversy.

Moreover, it was revealed that Homeplus had been increasing the issuance of short-term bonds such as ABSTB since the end of last year, fueling suspicions in the market that they recognized the possibility of a credit rating downgrade earlier and planned the rehabilitation application accordingly.

On the same day, Geum Jeong-ho, CEO of Shin Young Securities, also reaffirmed the existing claim, stating, "The issuing company and the credit rating agency inevitably maintain ongoing communication," and added, "From the capital market's perspective, it is natural to assume they knew." Shin Young Securities has been considering criminal charges, asserting that Homeplus issued ABSTB fully aware of the situation in advance.

When asked whether Shin Young Securities is a victim in this incident, CEO Geum responded, "Honestly, I am somewhat angry just to be here." He emphasized, "We did not predict this at all," and added, "It is incomprehensible from a common-sense perspective that they applied for corporate rehabilitation procedures the day after the downgrade, on March 4."

He pointed out that the ABSTB issuance worth 82 billion KRW on February 25 occurred without Homeplus knowing the high likelihood of a downgrade, which they had been informed of by the credit rating agency. He said, "If we had heard on that day that the rating was likely to fall or had already fallen, we would have demanded Homeplus cancel the issuance. We only received that information after 6 p.m. on February 27."

He also confirmed that they were unaware that Homeplus must make an early repayment of 250 billion KRW to Meritz Financial Group in June. He lamented, "We knew about the 1.3 trillion KRW real estate-secured loan through Meritz, but we did not know that 250 billion KRW would mature this year." When asked about the timing of the criminal complaint, he said, "All preparations are complete."

Shin Young Securities was the sole lead manager for Homeplus's ABSTB issuance and sold the bonds to investors and other securities firms. While BNK Investment & Securities, Hanyang Securities, DS Investment & Securities, and Leading Investment & Securities also managed the issuance of CP and electronic short-term bonds, Shin Young Securities handled the largest volume.

Financial authorities are focusing on investigating whether Shin Young Securities, Homeplus, and major shareholder MBK Partners issued short-term bonds despite being aware of the credit rating downgrade in advance. The Financial Supervisory Service (FSS) began inspections on March 13 targeting Shin Young Securities and two credit rating agencies, Korea Ratings and Korea Investors Service, and has announced plans to expand the investigation to include MBK Partners. FSS Governor Lee Bok-hyun stated, "We will conduct very strict inspections and investigations regarding the MBK case," adding, "Currently, only securities firms and credit rating agencies are under inspection, but I think we need to expand the scope."

However, Homeplus and MBK Partners strongly deny related allegations, claiming, "There was no other way to prevent default." Kim Kwang-il, Vice Chairman of MBK Partners and Co-CEO of Homeplus, argued, "A3- commercial paper is a rating that is hardly traded or issued in the market," and said, "There was a repayment demand of 600 to 700 billion KRW within three months, and there was no way to prevent default. To protect business partners and employees, we decided it was appropriate to apply for rehabilitation procedures first and then negotiate separately with creditors." Kim stated that the preparation period for the rehabilitation application was from February 28 to midnight on March 4. Cho Joo-yeon, Co-CEO of Homeplus, also supported this, saying, "After the credit rating downgrade, we discussed the rehabilitation procedures with executives, and it was exactly as Vice Chairman Kim said."