Private Equity Tycoon Becomes Mired in Probe Over Korea Buyout

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Within days, credit rating agencies downgraded Homeplus, citing its worsening balance sheet and dwindling cash reserves. On the heels of the downgrade, Homeplus entered into court receivership, a form of corporate rehabilitation that skirts a bankruptcy filing but confirms financial distress, while the firm tries to shore up its finances. 

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South Korea’s Financial Supervisory Service (FSS) launched an investigation in March. By April, the case had been escalated to the prosecutors’ office, prompting an emergency government briefing to reassure investors.

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Prosecutors searched the homes and offices of several MBKP and Homeplus executives, including Kim’s, seizing documents and digital devices. 

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The Seoul Central District Prosecutor’s Office told Bloomberg that an investigation of fraudulent bond sales was in progress, without saying who or what might be the target of their investigation. “If charges are confirmed, an indictment will be made, if not, the investigation will be dismissed,” a spokesperson said. 

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A spokesperson for MBKP denied any wrongdoing. “The allegations made by the FSS are completely not true,” Seikyu Hong, the firm’s head of communications, told Bloomberg. “Homeplus and MBK Partners did not anticipate the downgrade of Homeplus’s credit rating, nor did they make any prior preparations for rehabilitation proceedings.”

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“The core issue ultimately comes down to whether MBKP decided to file for Homeplus’s court receivership before issuing the asset-backed commercial paper (ABCP),” Sanghyun Park, an analyst at Clepsydra Capital, said, adding it was the only part that could be subject to legal scrutiny.

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“Michael Kim’s image as a disruptor of the traditional system in Korea is now at risk,” said Lee, who is an associate professor at the University of California San Diego. “And the Homeplus case comes with huge risk factor for private equity in general. Especially because for PE business in Korea, reputation matters.”

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For Kim, the events are a dramatic reversal. Born in South Korea and educated at Harvard University, he founded MBKP in 2005 after a successful career at Carlyle Group.  Over two decades, he built MBKP into one of Asia’s largest homegrown private equity funds, winning deals across China, Japan, and Korea.

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Based in Seoul but often traveling between Hong Kong and the U.S., he has maintained a low profile since the launch of the investigation. Meanwhile South Korea’s government, aiming to stave off a wider crisis of confidence, has signaled it may tighten oversight of private equity activity. 

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Homeplus, for many Koreans, is a familiar name with affordable stores in neighborhoods across the country. Its struggles are seen not just as a corporate failure, but as a reflection of what can go wrong when global capital meets local consumer infrastructure.

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“The corporate rehabilitation of Homeplus debacle is a big deal,” said Douglas Kim, analyst at Douglas Research Advisory. “Many investors — including hundreds of local investors in Korea — could lose significant amounts of money on their investments in corporate bonds and commercial paper of Homeplus.” 

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As financial pressures mount, the human toll is playing out just steps from MBKP’s front door. Ahn Soo-yong, head of the Homeplus labor union, has been on hunger strike since early May to protest what she calls MBKP’s mismanagement. Camped outside the firm’s Seoul headquarters with a dozen fellow protesters, she holds daily demonstrations.

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“They haven’t hired to fill the gaps in the workforce despite the shortage of people due to reasons including retirement or sick leave,” she said in an interview.

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For its part, Homeplus said that unlike its rivals, it hasn’t restructured despite falling sales. Its job losses reflect the broader shift to online shopping — and are the smallest among Korea’s top three discount chains, it said.