SEOUL, May 19 (Xinhua) -- Concerns mounted in South Korea over leveraged buyout (LBO) funds in the aftermath of a scandal involving a Seoul-based private equity fund (PEF), which has been criticized for unduly leveraging debt to buy blue chips, repaying debt through the sale of core assets, and eventually worsening corporate value.
The prosecution executed a search warrant in an airport in Incheon, west of Seoul, and secured a mobile phone of Michael Byungju Kim, co-founder and chairman of MBK Partners, one of the largest PEFs in Asia that manages more than 30 billion U.S. dollars in assets, local broadcaster JTBC said Saturday.
The U.S. businessman of South Korean origin was accused of shifting losses onto investors by issuing bonds with prior knowledge of a downgrade in the credit rating of Homeplus, the country's second-largest hypermarket chain, which the PEF took over from Britain's Tesco in 2015.
The retailer sold bonds to investors until Feb. 25, and three days later, its credit rating was downgraded to A3-, one notch above speculative grade B. Then, it filed for corporate rehabilitation on March 4, according to a local economic daily Chosun Biz.
The prosecution suspected that executives of MBK Partners and Homeplus issued bonds despite their awareness of the imminent credit rating downgrade while hiding plans for corporate rehabilitation. The headquarters of Homeplus and the residences of Homeplus and MBK Partners executives were raided in late April.
MBK Partners bought a full stake of Homeplus from Tesco in 2015 at 7.2 trillion won (5.1 billion U.S. dollars), marking the country's largest PEF takeover to date.
Of the total funding, 2.7 trillion won (1.9 billion dollars) was raised through loans secured by the retailer's real estate, while taking on its existing loan worth 1.3 trillion won (928 million dollars), according to local daily JoongAng Ilbo.
The newspaper said the PEF focused on selling the retailer's properties, especially major stores with a good location and a big sale, rather than "inefficient" ones, to pay back massive loans and interest, cutting the number of its stores from 142 in 2015 to 127 in 2024.
For loan repayment, MBK Partners also used sale-and-leaseback agreements in which some stores are sold and leased back, lifting the lease debt of Homeplus to 3.85 trillion won (2.7 billion dollars) in February last year.
The sale of profitable branches to repay loans and interest, triggered by the undue leverage, damaged the retailer's competitiveness, leading to Homeplus recording three consecutive fiscal years of net losses from 2021.
"Problems arise from the moment (a PEF) acquires a company with a loan. (The PEF) is induced to pay back the loan through asset sale and restructuring that should have been used to make the company healthier," Park Ju-gun, chief of the corporate analysis firm Leaders Index, said in an interview with YTN Radio.
Park gave examples of MBK Partners' failed acquisitions, including Younghwa Engineering, which was bought by the PEF in 2009 when it was the country's biggest steel structure manufacturer, but was sold off in 2017 after going through court receivership.
MBK Partners has attempted since last year to acquire a controlling stake in Korea Zinc, the world's No. 1 nonferrous metal smelter, in partnership with the smelter's top shareholder YoungPoong, despite the management's resistance to the takeover bid.
To pursue an offer to buy Korea Zinc shares, the PEF borrowed 1.58 trillion won (1.1 billion dollars) for nine months in October last year from local brokerage NH Investment & Securities and repaid about 600 billion won (430 million dollars), according to the local newspaper Seoul Economic Daily.
It indicated the still remaining loan of almost 1 trillion won (716 million dollars) for the tender offer.
"Korea Zinc belongs to one of the national infrastructure industries that should be invested in the long run. Concerns are great among the financial sector and the financial authorities (about the PEF's takeover bid)," the head of Leaders Index told YTN Radio.
He noted that the PEF should acquire an undervalued blue-chip company and resell it after improving its corporate value through restructuring, stressing that Korea Zinc was not undervalued.
MBK Partners was founded in 2005 when South Korea introduced a relevant PEF law, showing rapid growth to become one of the top players in Asia.
The PEF's chairman sat at the top with 9.5 billion dollars in wealth in the 2025 South Korean billionaire list of Forbes, surpassing Samsung Electronics Executive Chairman Lee Jae-yong with 7.8 billion dollars. ■
