Korea Homeplus mess is warning for buyout barons

Meritz Financial

02/07/2025 13:00

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Robyn Mak

HONG KONG, July 2 (Reuters Breakingviews) - The extraordinary backlash in South Korea to the failure of Homeplus suggests it may be a long time before buyout barons are welcome in the country. The grocery chain has won court approval to look for a buyer as part of its massive restructuring of debt worth 6.6 trillion won ($4.8 billion). A sale will end an ugly chapter in the country's nascent private equity industry.

MBK Partners' punchy $6.1 billion swoop on Homeplus a decade ago - Asia's largest ever buyout at the time - cemented Kim Byung-ju's status as the "godfather of Asian private equity". The group he founded and chairs, which invests in South Korea, Japan and Greater China, has since tripled in size with assets under management exceeding $31 billion in 2024.

Its marquee investment soured, though, and MBK will write down its entire $1.8 billion stake when it finds a buyer for Homeplus. Other investors including the National Pension Service also face losses, alongside major lenders like Meritz Financial 138040.KS and retail investors which bought financial products linked to Homeplus' short-term bonds.

Not only was the Homeplus deal highly leveraged and badly timed. A minimum wage increase, the Covid pandemic and rapid rise of nimbler e-grocers like Coupang all added to the retailer's financial losses, topping a cumulative $1 billion over five years. The group also sold off valuable stores, property and other assets, local media reported citing official disclosures.

For its part, South Korea is pinning the blame squarely on Homeplus' owner. Labour unions and investors have staged hunger strikes and protests outside Homeplus stores and MBK's office; meanwhile, the grocer's executives and Kim have been hauled in front of lawmakers demanding they use personal funds to rescue the business. The MBK chair has personally donated 40 billion won to Homeplus and provided additional loan guarantees.

To complicate matters, tax authorities and antitrust watchdogs are now scrutinsing the private equity group. There are also allegations that Homeplus missold bonds earlier this year without disclosing the firm's upcoming ratings downgrade. In May, prosecutors barred Kim from leaving the country as part of its investigation. MBK and Homeplus deny any wrongdoing.

It's a stark contrast to how Japan is reacting to a buyout wreckage at auto-parts supplier Marelli, which last month filed for voluntary bankruptcy protection. Owner KKR has endured nothing close to the heat MBK is facing. If Seoul is serious about its shareholder value push, it will need to accept that while private equity can be a force for good, not every buyout will be successful.

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CONTEXT NEWS

A South Korean court on June 20 approved Homeplus' plan to launch a sale of the grocery chain.

In March, Homeplus filed for a court-led restructuring of the company. Owner MBK Partners, a Northeast Asia-focused private equity firm, bought the retailer from British retailer Tesco in a $6.1 billion deal in 2015.

MBK said it plans to write off 2.5 trillion won of equity that it holds in the company as part of the sale.

South Korean prosecutors are investigating whether MBK approved debt issue by Homeplus in 2025 despite prior knowledge of a credit downgrade for the retailer. MBK denies any wrongdoing. In May, prosecutors banned foreign travel by MBK Chair Kim Byung-ju.

Japan has seen more private equity buyouts than Korea https://www.reuters.com/graphics/BRV-BRV/akvexqgzwpr/chart.png

(Editing by Una Galani; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on MAK/ robyn.mak@thomsonreuters.com))