Echoes of Homeplus: Is History Repeating Itself with Goryeo Zinc?

private equity firm MBK Partners is facing increasing criticism for its approach to acquiring Goryeo Zinc, with concerns mounting that the firm is employing a leveraged buyout (LBO) strategy reminiscent of the Homeplus deal that burdened the retailer with significant debt. This strategy, where a ample portion of the acquisition cost is financed through borrowing, raises questions about the long-term financial health of Goryeo Zinc and its strategic importance to national interests.

The Debt Burden: A Closer Look at the Financing

Approximately 75%, or roughly ₩1.2 trillion,of the ₩1.6 trillion invested in acquiring Goryeo Zinc over the past seven months has been secured through loans from NH Investment & Securities. This heavy reliance on debt is a key point of contention, particularly given the looming repayment deadline in June.Financial analysts suggest that MBK may encounter difficulties in refinancing this debt, especially considering the negative perceptions stemming from the Homeplus situation. Securing favorable terms, including manageable interest rates and collateral requirements, could prove challenging.

Homeplus as a Cautionary Tale

The Homeplus acquisition in 2015 serves as a stark reminder of the potential pitfalls of LBOs. MBK Partners financed approximately 70% (₩5 trillion) of the ₩7.2 trillion Homeplus acquisition through debt. Subsequently, Homeplus faced immense pressure to repay these loans, leading to the sale of core real estate assets and a focus on repaying the principal on redeemable convertible preference shares (RCPS). This ultimately jeopardized Homeplus’s business foundation and its ability to invest in long-term growth. The Homeplus case underscores the risks associated with excessive borrowing in acquisitions.

if MBK dominates Goryeo Zinc, you can step on the train of Homeplus.
Glas Louis, global voting advisor

Concerns for Goryeo Zinc’s Future

The current financing structure raises serious concerns about the potential impact on Goryeo Zinc’s financial stability and long-term business prospects. If MBK shifts the burden of debt repayment onto Goryeo Zinc, it could compromise the company’s ability to invest in innovation, maintain its competitive edge, and secure strategic minerals vital to national security.global voting advisor Glas Louis has even warned that Goryeo Zinc could face a similar fate to Homeplus under MBK’s control.

Public Sentiment and Regulatory Scrutiny

Public opinion appears to be turning against leveraged buyouts, with a Realmeter poll indicating that 69% of respondents believe regulations are needed to govern such acquisition methods. This growing negative sentiment adds to the pressure on MBK Partners,as it faces moral criticism for seemingly repeating a strategy that has previously resulted in adverse consequences.

limited Partnership Challenges and Reputational risks

MBK’s pursuit of opposed M&A activities is further intricate by challenges in securing funding. Several major limited partners (LPs), including the National Pension Service and the Radioactive Waste Management Fund, have formalized policies against investing in hostile takeovers. This reluctance stems from reputational risks and concerns about the ethical implications of such investments.The potential withdrawal of key LPs could significantly impact the operation of MBK’s Fund VI and make it more challenging to attract new investors.

Industry Outlook: A Potential for Failure?

An official within the financial investment sector commented, MBK is still insisting on an excessive structure, even though the risk of borrowing has already been confirmed by the Homeplus crisis. The prevailing sentiment within the industry suggests that MBK’s Goryeo Zinc acquisition faces a significant risk of failure, as the negative repercussions of the leveraged buyout strategy begin to surface.