MBK's Management Cited as Cause of Distress
"Burden of Acquisition Financing Shifted and Asset Sales"
Korea Ratings has identified the management style and investment recovery strategy of private equity fund MBK Partners as one of the causes of the Homeplus crisis. The agency pointed out that an aggressive leveraged buyout (LBO) and the subsequent sale of key assets undermined the business foundation of Homeplus.
In its recently published "Q1 2025 Analysis of Defaulted Companies," Korea Ratings discussed Homeplus in a report analyzing the company's default, citing the investment recovery strategy of the majority shareholder, the private equity fund (PEF), as a major cause of the company's financial distress.
Korea Ratings stated, "Since the time of MBK's acquisition, Homeplus has borne the substantial repayment obligations for acquisition financing of 4.3 trillion won and 700 billion won in redeemable convertible preferred shares." The agency added, "The company has faced a heavy burden of repaying acquisition financing debt and financial costs, disproportionate to its cash generation capacity." It continued, "While Homeplus has made only limited capital expenditure (CAPEX) investments, it has continued to sell off its stores. This has weakened its market competitiveness and increased its rent burden, which in turn has led to a decline in profit-generating capacity."
The analysis concluded that, in order to repay its acquisition financing debt, Homeplus was forced to dispose of key assets and even use cash generated from operations, resulting in a vicious cycle that inevitably eroded its business competitiveness. As of the end of 2024, Homeplus's standalone net debt stood at 6.4334 trillion won, a 5.8% increase compared to the end of February 2021. The company's annual EBITDA was also far from sufficient to cover rent and interest expenses.
Korea Ratings noted, "As of the end of November 2024, the scale of net debt was extremely burdensome relative to the company's cash-generating ability." The agency also pointed out, "Despite its strong market position, Homeplus's sales have repeatedly shown low or negative growth," and diagnosed, "This was because continued store sales and limited capital investment led to a decline in the company's own competitiveness, which constrained its top-line growth."
Regarding MBK's management approach, the agency stated, "A private equity fund's strategy to enhance corporate value and recover its investment can have a significant impact on a company's business and financial stability, as well as its creditworthiness. When the repayment burden of acquisition financing is shifted to the target company, and when early repayment of acquisition financing and investment recovery is prioritized through asset sales, this places considerable strain on the target company's financial stability and overall management."
Meanwhile, as part of its investigation into the "Homeplus short-term bond incident," prosecutors summoned the head of the corporate evaluation division at Korea Ratings for questioning as a reference witness on this day. This is part of an investigation to determine whether MBK was aware of a potential credit rating downgrade in advance and issued short-term bonds while preparing for corporate rehabilitation. Previously, on May 12, prosecutors also conducted a search and seizure of the offices of Korea Investors Service and Korea Ratings.
On February 28, Korea Ratings announced that it would downgrade the credit rating of Homeplus's commercial paper and short-term bonds from 'A3' to 'A3-'. Four days later, on March 4, Homeplus filed for corporate rehabilitation proceedings (court receivership) with the Seoul Bankruptcy Court.
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