Homeplus Asserts RCPS Capital Conversion Was Legitimate Accounting Procedure

"Conversion of Preference Shares into Capital Unrelated to ABSTB Issuance"
"Land Asset Revaluation Conducted Through Official Procedures... Common Practice for All Companies"

On January 12, Homeplus refuted allegations regarding the conversion of redeemable convertible preferred shares (RCPS) into capital, stating that it was a legitimate accounting procedure.

In a statement released that day, Homeplus explained, "The accounting conversion of RCPS into capital was carried out lawfully after an objective review by an external accounting firm," adding, "The conversion of RCPS into capital took place on February 27, 2025, after the credit rating downgrade, and was unrelated to the issuance of asset-backed short-term bonds (ABSTB)."

On the 28th, the prosecution investigating the 'Homeplus Incident' is conducting a search and seizure at the Homeplus headquarters in Gangseo-gu, Seoul. Photo by Yonhap News

The prosecution suspects that MBK Partners, the largest shareholder of Homeplus, committed accounting fraud exceeding 1 trillion won. Just before filing for corporate rehabilitation, MBK changed the entity holding the redemption rights for RCPS, with a balance of around 1.1 trillion won, from the special purpose company (SPC) Korea Retail Investment to Homeplus itself. The prosecution argues that treating this as capital rather than debt does not comply with accounting standards.

RCPS are hybrid securities with characteristics of both stocks and bonds. Korea Retail Investment, the SPC established by MBK Partners for the acquisition of Homeplus, held the RCPS issued by Homeplus. On February 26 of last year, Korea Retail Investment signed an amendment with Homeplus, transferring the redemption rights for the RCPS to Homeplus. With this, Homeplus gained the discretion to redeem the RCPS, changed its classification from debt to capital, and the prosecution is viewing this as evidence of accounting fraud.

However, industry sources believe that Homeplus converted RCPS into capital not to apply for corporate rehabilitation, but as a measure to prevent a credit rating downgrade. At the time, Homeplus had received notice of a downgrade from a credit rating agency and had requested a review. The company converted the RCPS into capital and underwent a review by the credit rating agency with the adjusted debt ratio, but the downgrade decision was not reversed.

The prosecution also alleges that MBK inflated Homeplus’s financial statements to lower its debt ratio before applying for corporate rehabilitation. According to the prosecution, during an asset revaluation of its land holdings in May of last year, Homeplus valued the assets at around 700 billion won, roughly double the actual market value.

In response, Homeplus emphasized, "The asset revaluation of the land was also conducted through an official process based on an objective assessment by an appraisal agency authorized by the government."

Homeplus further stated, "Although real estate values have risen significantly over time, the lack of asset revaluation for many years led to a considerable gap between the actual value and the book value. To provide accurate information to investors and other stakeholders, we reflected the current actual asset value in our books through an objective and official process," adding, "The financial statements reflecting the results of the asset revaluation were also disclosed in June 2025, after the rehabilitation application."

The company also noted, "Just as Lotte Shopping and Hotel Shilla conducted land asset revaluations a few years ago, asset revaluation is a process carried out by all companies holding real estate."

Meanwhile, the Seoul Central District Court is scheduled to hold a pretrial detention hearing (warrant review) on the afternoon of the 13th for four individuals: MBK Chairman Kim Byungjoo, MBK Vice Chairman Kim Kwangil (co-CEO of Homeplus), MBK Vice President Kim Junghwan, and Homeplus Executive Director Lee Sungjin. Previously, the third anti-corruption division of the Seoul Central District Prosecutors’ Office (acting chief prosecutor Kim Bongjin) requested arrest warrants for the four on charges including fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Capital Markets Act.