2025-03-14
(Chosun Biz, Mar 14)
Homeplus may face significant legal scrutiny as the legitimacy of its recent commercial paper issuance is questioned.
Homeplus, which has private equity fund MBK Partners as its largest shareholder, is facing controversy over issuing commercial paper (CP) just before its sudden application for corporate rehabilitation. There are concerns that criminal penalties may be possible, similar to the past LIG Construction and Tongyang Securities ‘CP fraud’ incident. Experts analyzed that the key issue will be proving intent regarding the method and target of CP sales and whether there was recognition of management deterioration.
According to the Korea Securities Depository’s securities information portal on the 13th, the current outstanding balance of Homeplus’s CP issuance is 103 billion won. An amount of 16 billion won is due this month. An additional 15 billion won is due in April, 34 billion won in May, 26 billion won in June, 15 billion won in July, and 10 billion won in August. However, due to the rehabilitation application, these CPs have dropped to a credit rating of ‘D,’ effectively rendering them worthless. If the court ultimately declares bankruptcy, individual investors who purchased Homeplus CPs will not be able to recover their principal.
In the market, voices are growing that Homeplus’s issuance of CPs right before the rehab application could be viewed as fraud. Unlike the conditions for issuing company bonds, which are stringent, CPs can be issued without board approval or public announcement, making them a preferred funding method for typically struggling corporations. As a result, investors know the credit rating and CP interest rate of the issuing corporation but are unaware of its financial troubles.
Similar cases often mentioned alongside Homeplus include those of LIG and Tongyang. The late Koo Ja-won, honorary chairman of LIG Group, along with his son Koo Bon-sang, chairman of LIG Group, and Koo Bon-yeob, former vice president of LIG Construction, issued about 200 billion won worth of CPs just ten days before applying for LIG Construction’s rehabilitation procedure, ultimately being charged with fraud. In 2013, Tongyang Group concealed its risk of bankruptcy and issued CPs and company bonds through its subsidiary Tongyang Securities while the then-chairman of the group was incarcerated.
All these cases share the characteristic of having proved intent. LIG Construction manipulated its accounting to conceal poor management and issued CPs while planning a corporate rehabilitation process, continuing to issue CPs to recover collateral stock. For this reason, the appellate court pointed out that the action was ‘an immoral act beyond moral hazard, deceiving customers with insufficient information while planning a rehabilitation application equivalent to a death sentence for the corporation for the sake of recovering pledged shares of the major shareholder’s family.’
Tongyang Group, knowing it had no ability to repay funds, also continued to issue company bonds and CPs right up until before legal management. A bigger issue was the involvement of its affiliates. While other securities firms refrained from selling Tongyang’s affiliate company bonds and CPs due to the likelihood of insolvency, Tongyang Securities promoted them actively, attracting private investors, causing damages to snowball. Tongyang Group inflicted losses of approximately 1.3 trillion won on more than 40,000 general investors.
Homeplus stated that it is unrelated to the CP sales, which it claims were conducted by securities firms. It also clarified that the issuance on February 25, just one week before the rehabilitation application, was simply a periodic issuance. A company spokesperson said, ‘CP issuance has been done periodically every month for several years since the Tesco days before MBK Partners acquired the company.’
It is also known that Homeplus became aware of the credit rating downgrade on the afternoon of February 25, the last date of CP issuance. However, Homeplus has indicated it decided on the rehabilitation procedure during the weekend. If Homeplus’s explanation is correct, it could eliminate the fraud allegations.
However, given that there are a significant number of victims, the Financial Supervisory Service (FSS) is keeping a close watch. The FSS has launched inspections involving related securities firms as well as credit rating agencies.
There have been cases where fraud charges were dropped under similar circumstances. Yoon Seok-geum, chairman of Woongjin Group, was acquitted in 2014 of issuing around 120 billion won of fraudulently obtained CPs. It was recognized that the CPs were issued to avoid the bankruptcy of the troubled Woongjin Group, and that Yoon Seok-geum had even contributed his personal funds to save the company, which weakened the ‘intent of crime.’ Unlike LIG, the issuance of Woongjin Group’s CPs was considered ‘refinancing,’ in preparation for the maturity of already issued bills.
An industry insider noted, ‘Homeplus claims it became aware of the retail sales only after applying for rehabilitation, but this does not seem to be the case.’ They added, ‘Ultimately, how intent is proven will be crucial in determining the fraud allegations.’
※ Please refer to the article: Homeplus faces fraud allegations over CP issuance before rehabilitation application – CHOSUNBIZ
