The government said Tuesday it was mulling a tighter curb on leveraged buyout firms, in response to liberal lawmakers’ claims that a predatory act by buyout firm MBK Partners is to blame for the liquidation crisis of hypermarket chain Homeplus.
Kwon Dae-young, vice chair of the Financial Services Commission, said the top financial regulator was “discussing stricter oversight” of the private equity firm’s leveraged buyout activities, in response to Democratic Party Rep. Kim Hyun-jung’s inquiry at a hearing of the National Policy Committee at the National Assembly.
Kwon added the regulator will flesh out the details in the process of legislation as multiple bills were pending to tighten its grip on leveraged buyout activities.
This follows South Korea’s announcement in December of stricter regulations to allow the license of private equity firms to be revoked for a single law violation. It also aimed to strengthen reporting and disclosure obligations.
Rep. Kim Hyun-jung of the Democratic Party of Korea, one of the members of the National Policy Committee, said such measures are insufficient to prevent a recurrence of the financial crisis facing Homeplus.
Kim and other Democratic Party lawmakers on Tuesday claimed that MBK Partners borrowed most of the $5 billion used in the Homeplus acquisition in 2015, using Homeplus assets as collateral in its leveraged buyout. The lawmakers also accused MBK Partners of taking financial gains from dividends and sales of Homeplus’ real estate assets while leaving the company in debt and its workers paid late.
Kim is one of the liberal lawmakers to have proposed bills to halve the maximum level of debt a buyout fund can muster, which is currently four times higher than the net assets of the fund under the Capital Markets Act.
Kim also suggested that the financial authorities mandate that buyout funds file disclosures of asset sales with the authorities, and blacklist buyout firms flagged for troubling leveraged buyout cases in the past.
Lee Chan-jin, chief of the Financial Supervisory Service, said that the financial watchdog was cooperating with the National Pension Service on the matter.
Similar inquiries centering on the leveraged buyout scheme were made during the hearing by Democratic Party Reps. Kang Jun-hyeon and Son Myoung-soo.
Kang suggested that there is a global trend of strengthening regulations on buyout funds in the United States, the United Kingdom, the European Union and Australia.
Kwon said the regulator would “take them as a reference.”
Kwon also urged private equity firms in South Korea to have “a stronger sense of responsibility as part of the national financial system,” and said their failure to do so would “inevitably lead to stronger regulations.”
consnow@heraldcorp.com