🚨 Analysis of MBK Vice Chairman's Controversial Remarks about Homeplus Rehabilitation and Accountability

Today Korean Economic News | 2025.03.16

📌 MBK Vice Chairman's Remarks about Homeplus Rehabilitation Cause Controversy

💬 MBK Partners Vice Chairman Kim Gwang-il claimed that "shareholders are making the biggest sacrifice" regarding Homeplus's rehabilitation procedure. However, these remarks are being criticized as an evasion of responsibility. Homeplus recently filed for corporate rehabilitation due to a credit rating downgrade, with MBK's failed leveraged management and excessive acquisition-related financial burden being pointed to as the cause.

1️⃣ Easy to Understand

Amid the corporate rehabilitation filing by major Korean retailer Homeplus, Kim Gwang-il, vice chairman of private equity firm MBK Partners which owns the company, has caused controversy by saying "shareholders are making the biggest sacrifice." I'll explain this situation in simple terms.

Homeplus was once a representative retail company that divided the domestic large-scale mart market with E-mart. In 2015, a private equity firm called MBK Partners acquired Homeplus from British Tesco for about 7.2 trillion won. The problem is that a significant portion of this massive acquisition fund was raised through loans.

Simply put, it's similar to buying a house with a small down payment and financing the rest with bank loans. This approach is called a 'Leveraged Buyout (LBO),' which means the acquired company (Homeplus) has to shoulder the burden of paying interest and principal on the debt incurred during the acquisition process.

After acquiring Homeplus, MBK Partners recovered a substantial portion of its investment by selling assets and taking dividends multiple times. For example, they sold Homeplus real estate and used that money to pay dividends, or took out additional loans to pay dividends. This is similar to buying a house and then selling off rooms one by one to put money in your pocket, or taking out additional loans to withdraw your investment.

However, in recent years, the large-scale mart industry has been experiencing declining sales due to the growth of online shopping and the impact of COVID-19. In this situation, Homeplus's management gradually deteriorated under excessive debt and interest burden, eventually leading to its application for corporate rehabilitation procedures to the court last week.

It is in this context that MBK Partners Vice Chairman Kim Gwang-il made the statement that "shareholders are making the biggest sacrifice." He spoke in terms of losing all the money they invested, but many people are criticizing this as an evasion of responsibility, pointing out that MBK has already recovered a substantial portion of its investment through dividends and other means. Particularly, in a situation where the Homeplus crisis threatens employees' jobs and could harm suppliers or creditors, the claim that shareholders are making the biggest sacrifice is being criticized for failing to properly reflect reality.

2️⃣ Economic Terms

📕 Corporate Rehabilitation Procedure

Corporate rehabilitation is a system where a company in financial difficulty adjusts its debts and normalizes management under court supervision.

• Previously known as 'court receivership,' this system aims to prevent bankruptcy and preserve corporate value.
• It is characterized by partial limitation of creditors' rights and readjustment of debt repayment conditions.

📕 Leveraged Buyout (LBO)

Leveraged Buyout (LBO) is a method of acquiring a company by raising most of the acquisition funds through loans.

• It has the advantage of being able to acquire a large-scale company with little equity capital.
• It creates significant financial burden as the debt must be repaid using the target company's cash flow after acquisition.

📕 Capital Structure

Capital structure refers to a company's method of fundraising and the ratio of debt to equity.

• It is measured by debt ratio, equity ratio, etc., and is an important indicator for evaluating a company's financial soundness.
• Excessive debt is a risk factor that increases interest burden and reduces financial flexibility.

📕 Private Equity

Private equity is a fund that invests in non-public companies by raising money from a small number of investors, with a tendency to pursue short-term returns.

• Unlike public funds, it targets a small number of investors and is relatively less regulated.
• It mainly uses strategies of increasing value through restructuring, operational efficiency, asset sales, etc., after investment, and then selling.

3️⃣ Principles and Economic Outlook

💡 Structural Causes and Mechanisms of the Homeplus Crisis

• The background of Homeplus filing for corporate rehabilitation involves a complex interplay of excessive leveraged buyout and structural changes in the retail industry.

  • First, MBK Partners' leveraged buyout method and the resulting financial burden are the fundamental causes. In 2015, MBK Partners acquired Homeplus for 7.2 trillion won, with about 5 trillion won raised through debt. Despite not being the subject of the acquisition transaction, Homeplus ended up shouldering the burden of this debt after the acquisition. Specifically, Homeplus's financial structure significantly deteriorated by taking out loans secured by its real estate assets or through additional borrowing after the acquisition. Homeplus's debt ratio became much higher than before the acquisition, creating a situation where it had to pay hundreds of billions of won in interest every year.

  • Second, asset sales and excessive dividends for short-term returns weakened the company's competitiveness. After the acquisition, MBK Partners recovered a substantial portion of its initial investment by selling Homeplus's real estate assets and using those funds to pay dividends. They also implemented special dividends through additional borrowing. In this process, Homeplus lost core assets while its debt burden increased, and its ability to invest in new growth engines decreased. This was like a strategy to maximize current returns by mortgaging the company's future, resulting in the erosion of long-term corporate value.

  • Third, structural changes in the retail industry and intensified competition worsened the business environment. Since Homeplus was acquired by MBK in 2015, the retail industry has undergone dramatic changes. The rapid growth of online shopping, the emergence of new services like dawn delivery, and changes in consumption patterns due to COVID-19 have posed significant challenges to the traditional large-scale mart business model. In particular, while competitors like E-mart and Lotte Mart strengthened their online businesses and pursued store innovation, Homeplus couldn't make necessary investments due to its excessive debt burden. This led to a gradual weakening of its competitiveness in the market, with both sales and profitability showing a downward trend.

  • Fourth, the COVID-19 pandemic and recent economic downturn accelerated the crisis. COVID-19 initially brought temporary benefits to large-scale marts with increased demand for groceries, but in the long term, it accelerated the shift of consumption to online shopping. Additionally, the recent high-interest rate environment and economic slowdown further increased Homeplus's interest burden and led to reduced consumer spending. This deterioration in the external environment made the situation even more difficult for Homeplus, which was already financially vulnerable.

• With these factors working together, Homeplus, once a leader in the domestic retail industry, eventually had no choice but to file for corporate rehabilitation. This can be seen as a case that shows the negative impact of excessive leveraged buyouts and pursuit of short-term returns on a company's sustainability, beyond simple management failure.

💡 Debate on Private Equity Management Style and Social Responsibility

• MBK Partners' management approach to Homeplus raises fundamental questions about the balance between private equity investment strategies and social responsibility.

  • First, it's necessary to examine the traditional investment strategies of private equity firms and their impact. Private equity firms typically use strategies to create returns and increase corporate value in a short period after acquiring a company through cost reduction, asset sales, business restructuring, etc. This approach has the advantage of improving inefficient companies and enhancing resource allocation efficiency through market mechanisms. However, as seen in the Homeplus case, excessive debt, asset sales, and dividends can result in sacrificing a company's long-term competitiveness and sustainability. In particular, selling a company's core assets and using those funds to pay dividends can be a factor that weakens the company's future growth engines.

  • Second, the balance between private equity investment returns and a company's long-term value is an important issue. MBK Partners is known to have recovered a substantial portion of its investment through dividends, asset sales, etc., after acquiring Homeplus. While this may have provided good short-term returns to fund investors, it has been criticized for damaging the long-term competitiveness and value of Homeplus as a company. This suggests that 'corporate value maximization' pursued by private equity should not only focus on short-term financial performance but should approach from a more comprehensive perspective including sustainable competitiveness and growth potential.

  • Third, the issue of responsibility toward various stakeholders of a company arises. Vice Chairman Kim Gwang-il claimed that "shareholders are making the biggest sacrifice," but shareholders are not the only stakeholders affected by the corporate rehabilitation procedure. Homeplus's approximately 20,000 employees face job insecurity and the possibility of restructuring, and thousands of partner companies are exposed to risks such as transaction suspension or payment delays. Additionally, creditors must bear losses such as decreased bond value or delayed repayment. In this situation, the claim that shareholders who have already recovered a substantial portion of their investment are making the "biggest sacrifice" is being criticized for lacking consideration of corporate social responsibility and various stakeholders.

  • Fourth, the issue of financial structure and risk distribution in the corporate acquisition process is also important. The leveraged buyout method allows for the acquisition of a large-scale company with little equity capital, but most of the debt and risk generated in this process are transferred to the acquisition target company. In Homeplus's case, the structure was such that MBK Partners acquired the company with little equity capital, and then Homeplus shouldered the debt incurred during the acquisition process. This created an imbalance between the acquisition entity and the risk-bearing entity, ultimately resulting in the deterioration of the company's financial soundness.

• This debate shows a fundamental conflict between private equity investment strategies and corporate social responsibility. It raises concerns that an approach that emphasizes only short-term financial performance and investor returns may sacrifice the long-term value and sustainability of a company, and by extension, of society as a whole. It's time for social consensus and institutional supplements regarding the role and responsibility of private equity firms.

💡 Outlook for the Corporate Rehabilitation Process and Lessons

• How will Homeplus's corporate rehabilitation procedure proceed, and what lessons can be learned from this case?

  • First, Homeplus's corporate rehabilitation process is expected to be complex and long-term. Once the corporate rehabilitation procedure begins, an administrator appointed by the court takes over the company's management and develops a rehabilitation plan through consultation with creditors. Various measures such as debt adjustment, business restructuring, workforce reduction, and asset sales will be considered in this process. Particularly, as Homeplus is a large retail company with many employees, partner companies, and stores, the rehabilitation process is likely to be complex and time-consuming. It may take generally 6 months to over a year until the rehabilitation plan is approved, and even after that, implementation and monitoring according to the plan will continue.

  • Second, conflicts and coordination among various stakeholders will be important challenges during the rehabilitation process. Creditors will want to recover as much debt as possible, employees will want job security, partner companies will want continued transactions and payment, and local communities will want stores to remain open. Finding the optimal solution for the company's survival and recovery while coordinating these various interests will be a major challenge. In particular, issues such as which creditors will bear what level of loss in the debt adjustment process, and how many employees will be affected in the restructuring process, may become major points of contention.

  • Third, Homeplus's rehabilitation potential depends on how it responds to structural changes in the retail market. Corporate rehabilitation is not sufficient with just reducing debt; fundamental business model innovation and competitiveness enhancement are needed. Homeplus needs to establish a new growth strategy in line with structural changes in the retail industry, such as the growth of online shopping, changing consumption patterns, and intensified competition. This will include changes in various areas such as digital transformation, strengthening omni-channel strategy, store innovation, and product mix improvement. The rehabilitation procedure can provide time and foundation for these changes, but ultimate success depends on how effectively the company responds to market changes.

  • Fourth, this case provides important lessons in corporate acquisition and management. It clearly shows the negative impact that excessive leveraged buyouts and pursuit of short-term returns can have on a company's long-term soundness and competitiveness. It also reminds us that a company has responsibilities to various stakeholders including not only shareholders but also employees, customers, partner companies, and local communities, and that balancing these various responsibilities is important for sustainable growth. Going forward, an approach that considers not only short-term financial performance but also long-term value creation and social responsibility will become more important in corporate acquisition and private equity investment.

  • Fifth, the need for improved regulation and supervision of private equity firms' corporate acquisition and management is raised at the institutional level. There may be growing voices for institutional measures to prevent problems such as acquisition through excessive debt, excessive sale of corporate assets and dividends, and long-term value erosion due to pursuit of short-term returns. This requires a balanced approach that does not excessively restrict private equity activities while protecting the long-term interests of businesses and society as a whole.

• Homeplus's corporate rehabilitation process raises fundamental questions beyond the problem of a single company, such as ownership and management in modern capitalism, balance among various stakeholders, harmony between short-term returns and long-term value, etc. How this case unfolds and resolves will be an important reference point for future corporate acquisitions and management, and the role of private equity.

4️⃣ In Conclusion

MBK Partners Vice Chairman Kim Gwang-il's statement that "shareholders are making the biggest sacrifice" and the resulting controversy raise fundamental questions about corporate ownership and management, responsibility to various stakeholders, and the role of private equity, beyond the issue of a single statement.

The Homeplus crisis is a case that clearly shows the negative impact that excessive leveraged buyouts and pursuit of short-term returns can have on a company's long-term soundness and competitiveness. When MBK Partners acquired Homeplus in 2015, they raised a significant portion of the approximately 7.2 trillion won through debt, and subsequently recovered a substantial portion of their investment through asset sales and dividends. However, in this process, Homeplus was weakened in competitiveness due to excessive debt burden and loss of core assets, and its ability to invest to respond to structural changes in the retail industry also decreased.

Due to Homeplus's corporate rehabilitation procedure, approximately 20,000 employees face job insecurity and the possibility of restructuring, and thousands of partner companies are exposed to risks such as transaction suspension or payment delays. Additionally, creditors must bear losses such as decreased bond value or delayed repayment. Considering the difficulties of these various stakeholders, emphasizing that the shareholders' sacrifice is the greatest is difficult to avoid criticism for lacking consideration of corporate social responsibility and various stakeholders.

This case provides important lessons for private equity investment strategies and corporate management. It clearly shows that an approach that emphasizes only short-term financial performance and investor returns may sacrifice a company's long-term value and sustainability. In particular, the leveraged buyout method has revealed a structural problem where it allows for the acquisition of a large-scale company with little equity capital, but most of the debt and risk generated in this process are transferred to the acquisition target company.

Homeplus's corporate rehabilitation process is expected to be complex and long-term. Various measures such as debt adjustment, business restructuring, workforce reduction, and asset sales will be considered, and conflicts and coordination among various stakeholders will be important challenges in this process. Ultimately, Homeplus's rehabilitation potential depends on how it responds to structural changes in the retail market. It needs to be able to establish and implement a new growth strategy in line with the growth of online shopping, changing consumption patterns, intensified competition, etc.

In conclusion, the Homeplus case is an example that reminds us of the importance of balanced responsibility to various stakeholders and long-term value creation beyond short-term returns in corporate acquisition and management. It will also be an opportunity to reconsider the social perception and institutional framework regarding the role and responsibility of private equity. There is growing recognition that a company is not simply for the benefit of shareholders alone, but a social entity that creates sustainable value together with employees, customers, partner companies, local communities, and various other stakeholders.