Financial Authorities Ramp Up Pressure on MBK Partners
Focus on Unsound Business Practices Highlighted in Inspection Opinion Letter
Lee Eogwon: "Private Equity Funds Fall Short of Public Expectations"
MBK Partners: "We Will Fully Clarify Our Position During Inspection Procedures"
Since the launch of the new administration, financial authorities have been increasing pressure on MBK Partners. Under the leadership of Governor Lee Chanjin, the Financial Supervisory Service has sent an inspection opinion letter to MBK Partners, initiating disciplinary procedures. Lee Eogwon, the nominee for Chairman of the Financial Services Commission, has also ramped up pressure by making remarks targeting the Homeplus incident ahead of his confirmation hearing scheduled for September 2.
According to the financial investment industry on September 1, the Financial Supervisory Service recently sent an inspection opinion letter to MBK Partners. This document outlines the findings, disciplinary level, and grounds for action based on the inspection, and its issuance signifies the commencement of disciplinary procedures.
This inspection opinion letter was sent based on the on-site inspection of MBK Partners conducted by the Financial Supervisory Service in March. Allegations that Homeplus deceived investors and issued 600 billion won in short-term bonds while concealing its plan to file for corporate rehabilitation have already been reported to the prosecution and are under investigation.
As a result, the current disciplinary action is expected to focus on whether MBK Partners engaged in unsound business practices. The Capital Markets Act explicitly prohibits unsound business practices by general partners (GPs) that operate institutional private equity funds, such as MBK Partners. It is reported that the inspection opinion letter highlights as a key issue the alleged unsound business practices related to the handling of redeemable convertible preferred shares (RCPS) issued during MBK Partners' acquisition of Homeplus.
Financial authorities have recently been applying comprehensive pressure on MBK Partners. Prior to sending the inspection opinion letter, the Financial Supervisory Service and the Financial Services Commission also conducted an on-site investigation at MBK Partners' headquarters.
Lee Eogwon, nominee for Chairman of the Financial Services Commission, also stated in a written response submitted ahead of his confirmation hearing on September 2, "If there are areas where the financial authorities (the Securities and Futures Commission) can cooperate during the investigation, we will actively do so and closely monitor the ongoing inspection and audit."
He further emphasized, "Some practices of private equity funds (PEFs) revealed in recent issues do not meet the expectations of the market and the public. We will review the pros and cons of private equity funds and seek institutional improvements to restore market trust."
With pressure from financial authorities, as well as close attention from political circles and labor groups, there are predictions that MBK Partners will not be able to avoid severe disciplinary action. If MBK Partners receives a heavy penalty, such as an institutional warning or higher, as a result of this inspection, it could face penalties including suspension or cancellation of mandates from institutional investors such as the National Pension Service. Depending on the severity, sanctions against general partners can even include cancellation of registration. Other possible actions include business suspension, institutional warnings, and institutional cautions.
MBK Partners stated, "In order to protect the interests of investors such as the National Pension Service, we agreed to the amendment of the issuance terms of the redeemable convertible preferred shares in Homeplus held by Korea Retail Investment. We did not anticipate a downgrade in Homeplus's credit rating, nor did we prepare for corporate rehabilitation in advance." The company added, "We will fully clarify our position during the inspection procedures conducted by the financial authorities."
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