Homeplus sold bonds worth tens of billions of won despite knowing its credit rating was about to be downgraded, the Financial Supervisory Service (FSS) said on April 1, raising suspicions of fraud and deception against the retail chain and its owner, MBK Partners.
The FSS said it uncovered evidence suggesting Homeplus had prior knowledge that its credit rating would be downgraded from ‘A3’ to ‘A3-’ and was preparing to file for court-led bankruptcy protection. The retailer abruptly filed for Chapter 11-style rehabilitation on March 4, leaving investors and suppliers with funds tied up in the company.
Securities firms that sold bonds on behalf of Homeplus filed criminal complaints against the company and its executives for fraud. Some investors have also sued MBK Partners Chairman Kim Byung-ju and Homeplus executives.
“The findings from our investigation differ from the explanations previously provided by MBK and Homeplus,” Ham Yong-il, deputy head of the FSS’s capital market division, said during a briefing.
Homeplus had previously claimed that it began preparing for court receivership after being officially notified of the downgrade by a credit rating agency on Feb. 28. But the retailer sold 82 billion won ($56 million) worth of bonds to investors through securities firms on Feb. 25, three days before the downgrade was publicly disclosed. “It is possible that Homeplus was aware of the downgrade in advance but still sold bonds,” the FSS stated.
February marked the highest monthly volume of asset-backed short-term bonds (ABSTBs) issued by Homeplus (151.8 billion won), with more than h, 82 billion won sold on February 25, the same day the credit rating agency reportedly informed Homeplus of the downgrade.
Investors claim that had they known about the downgrade, they would never have invested. “If allegations that Homeplus sold bonds after it was notified of its credit rating downgrade, it could constitute fraudulent misrepresentation, a criminal offense,” said Ham.
The regulator also criticized Homeplus for allegedly misleading the market. When the company entered court receivership last month, it said it would repay financial debt, such as ABSTBs, by reclassifying it as trade payables eligible for repayment. Under South Korea’s corporate rehabilitation system, financial liabilities are typically frozen, while trade payables to suppliers and partners remain eligible for repayment.
“In the market, treating financial debt as trade payables is interpreted as a promise of swift repayment,” said FSS Governor Lee Bok-hyun. “But without a clear timeline or funding source, such a statement is essentially a lie.”
Ham added in the latest briefing that “the lack of clarity regarding repayment timing and priorities is fueling anxiety among suppliers and partners,” criticizing MBK and Homeplus for offering vague and evasive explanations.
The FSS also revealed that it has launched a regulatory audit into Homeplus, suspecting possible violations of reporting standards in the company’s accounting treatment. The investigation follows an initial review that raised red flags suggesting possible accounting fraud. “While checking the company’s books, we found certain items that show signs of gross negligence, and we are conducting a more in-depth investigation,” said an FSS official. Unlike routine audits, this regulatory audit involves a full review of the company’s financial records and could uncover serious irregularities in Homeplus’s financial reporting.
Four domestic securities firms—Shinyoung Securities, Hana Securities, Hyundai Motor Securities, and Eugene Investment & Securities—that managed Homeplus’s bond issuance and sales filed fraud charges against the company and its executives.
