Conflicting Homeplus Credit Ratings on the Same Day... Who Is to Blame?

Credit Rating Maintained for ABSTB Issuer, Downgraded for Homeplus
Despite Same Underlying Assets... "Rating Should Have Been Lowered or Delayed"
Korea Ratings: "Evaluated According to Criteria... Issue Lies in Communication Between Shin Young Securities and Homeplus"

It has been revealed that Homeplus received different credit ratings on the same day, just before filing for corporate rehabilitation. As Shin Young Securities and Homeplus are currently engaged in a legal dispute over the issuance of asset-backed electronic short-term bonds (ABSTB) based on card receivables, questions are being raised about the responsibility of the credit rating agency.

According to the investment banking (IB) industry on June 11, Korea Ratings notified Homeplus at around 3 p.m. on February 25 that its short-term credit rating would be downgraded from A3 to A3-. Earlier that morning, it publicly announced that the credit rating of SY Plus First Securitization Company (SPC), a special purpose company established by Shin Young Securities to issue ABSTB, would remain at A3. This SPC is a company that issued ABSTB backed by Homeplus card receivables as underlying assets and sold them to securities firms and investors.

Credit rating agencies assign credit ratings not only to corporations but also to SPCs established to sell securitized products. This is because any entity issuing bonds requires a credit rating. The issue is that a few hours before notifying Homeplus of its credit rating downgrade, the agency announced that the SPC’s credit rating would be maintained. On the same day, Shin Young Securities issued 82 billion won worth of ABSTB through this SPC, and the following week, on March 4, Homeplus filed for corporate rehabilitation at the Seoul Bankruptcy Court.

An industry insider pointed out, "Since the underlying asset of the SPC that sold the ABSTB is also Homeplus card receivables, there is no reason for the credit rating to differ if the same criteria were applied," adding, "If a downgrade of Homeplus’s corporate credit rating was foreseen, the SPC’s credit rating should also have been lowered or the assignment itself delayed." As Shin Young Securities and Homeplus are in a legal battle over the possibility of misselling the ABSTB, the responsibility of the credit rating agency is also coming under scrutiny.

Previously, from December last year to February 25 of this year, Shin Young Securities issued approximately 400 billion won worth of Homeplus ABSTB through the SPC, of which 300 billion won was sold to individual and institutional investors. Shin Young Securities has filed a lawsuit against Homeplus, claiming that Homeplus did not stop the issuance of ABSTB even though it was aware of the possibility of a credit rating downgrade.

In response, on May 28, Homeplus filed a countersuit against the management of Shin Young Securities for credit damage and defamation. Homeplus claims that despite Shin Young Securities having detailed knowledge of Homeplus’s financial and credit status through transactions involving ABSTB and other instruments from August 2022 to February 25 of this year, the company made false statements to the market. Within the industry, there are voices suggesting that Won Jongseok, chairman of Shin Young Securities and a member of the owner family, stepped down from his CEO position to avoid being held responsible for the Homeplus issue. Chairman Won served as CEO for 20 years since 2005.

Korea Ratings maintains that it assigned credit ratings strictly according to mechanical evaluation criteria, and that the fundamental issue lies in the communication between Shin Young Securities and Homeplus. The agency argues that since the SPC’s credit rating follows that of Homeplus, it could not be downgraded first. It also emphasized that there was no sharing of information between the departments responsible for corporate credit ratings and those handling securitized product credit ratings, nor should there have been.

A Korea Ratings official explained, "A credit rating agency cannot proactively demand a delay or reconsideration of ABSTB issuance," adding, "Homeplus and Shin Young Securities should have communicated with each other about their internal circumstances."