South Korea takes on its top private equity firm
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MBK founder Michael Kim. Photo by SeongJoon Cho/Bloomberg via Getty Images
South Korean securities regulators are planning to sanction MBK Partners, the country's largest private equity firm, over its ownership of retailer Homeplus.
Why it matters: South Korea is at a crossroads when it comes to private equity investment, as first evidenced by the Coupang situation.
- The sanctions, even if limited, are unprecedented and could have a chilling effect on PE firms seeking to do business in South Korea. Particularly as neighboring Japan becomes more friendly to the asset class.
Catch up quick: MBK paid around $6 billion to buy Homeplus from U.K. retailer Tesco in 2015, but the deal ultimately failed.
- The biggest burden was COVID, which converted a lot of Koreans into online shoppers — ironically boosting Coupang at Homeplus' expense.
- Homeplus early last year filed for the Korean equivalent of Chapter 11 bankruptcy, and last week moved closer to liquidation after a court denied another extension to secure adequate financing.
Behind the scenes: MBK's original buyout included redeemable convertible preferred shares bought by a co-investment vehicle, in which South Korea's National Pension Service was a limited partner.
- The firm later restructured some of the RCPS, ostensibly to support the larger investment. This is fairly standard for private equity in such situations — particularly given that the co-investors also are LPs in MBK's third fund, which did the deal — but it's raised political ire.
- The basic allegation is that the co-investment LPs needed to approve the restructuring, although such a governance term would be highly unusual.
- Separately, South Korean prosecutors have gone after MBK and founder Michael Kim over a different Homeplus-related issue — reflecting a "whole of government" approach that again is reminiscent of Coupang. That case remains outstanding, although a court rejected arrest warrants.
State of play: Securities regulators say they're planning to impose "suspension of duty" on MBK over the RCPS situation, although haven't yet provided any specific information. MBK has denied any wrongdoing.
- The sanctions theoretically could prevent MBK from fundraising or doing new deals, although could be much narrower — perhaps somehow specific to MBK's work on Homeplus. We're still awaiting official word.
The bottom line: The bark may be worse than the bite, but still could scare off investors.
