MBK, Meritz trade accusations over DIP loan guarantee to the end

MBK Partners and Meritz Financial Group continued to trade accusations until the very end, even as Seoul Bankruptcy Court moved to terminate Homeplus's court receivership proceedings.

MBK Partners, the controlling shareholder of Homeplus, issued a statement Thursday saying Meritz had taken the position that it would not lend more than 100 billion won. MBK added that it had clearly stated its position — that both MBK Partners as a corporate entity and Chairman Kim Byung-ju as an individual were willing to provide a joint guarantee on 100 billion won, half of the proposed 200 billion won, on the condition that Meritz disburses the full 200 billion won loan.

MBK Partners also released the court's ruling terminating the receivership. The document stated that MBK Partners and Kim Byung-ju had expressed willingness to provide a joint guarantee on 100 billion won of a 200 billion won loan from the three Meritz affiliates — Meritz Securities, Meritz Fire & Marine Insurance and Meritz Capital — and had asked the court not to terminate the proceedings, requesting an extension of the plan approval period so that a revised rehabilitation plan could be put to a creditors' meeting for deliberation and a vote.

MBK argued that Homeplus had conveyed Chairman Kim's personal willingness to provide a joint guarantee through a revised rehabilitation plan submitted to Seoul Bankruptcy Court on June 30.

Chairman Kim's personal joint guarantee had been a key condition Meritz set for Homeplus in connection with a 200 billion won debtor-in-possession loan to cover emergency operating costs.

As pressure mounted for the DIP loan in May, Meritz demanded a joint guarantee not only from MBK but from Chairman Kim personally. It cited concerns that extending the loan amid uncertainty over the company's recovery could expose its executives to criminal complaints and civil suits from shareholders under the revised Commercial Act. Negotiations broke down after Homeplus said only MBK Vice Chairman and Homeplus co-CEO Kim Kwang-il could provide a guarantee.

After the Democratic Party of Korea stepped in to mediate, Meritz convened a board meeting in mid-June and approved a loan of 100 billion won — half the original 200 billion won amount. Even then, Meritz required Chairman Kim's personal guarantee, stipulating that the 100 billion won could be withdrawn from an escrow account only after he personally stood as guarantor.

Meritz immediately rebuffed MBK's claims regarding Chairman Kim's guarantee. In a statement Thursday, Meritz said Kim had yet to provide a guarantee on the 100 billion won DIP loan it had offered, and argued that the Homeplus crisis was "the dismal result of MBK spending the past decade focused solely on recouping its investment."

Meritz maintained that MBK Partners should inject funds directly. "Over the remaining two weeks, MBK must fulfill its proper responsibilities as the largest shareholder and the party accountable for management — not stop at recovering investment returns, but do what is right for Homeplus's recovery," Meritz said, adding: "Please stop demanding that creditors break the law."

As the rift between MBK Partners and Meritz deepens, analysts say the chances of the receivership proceedings being reinstated have grown even slimmer. Seoul Bankruptcy Court has said it would allow the proceedings to resume if Homeplus secures funding within the two-week immediate appeal period. Homeplus also said Thursday it was "earnestly requesting" Meritz Financial Group to extend a 200 billion won operating loan, but the entrenched conflict appears unlikely to be resolved in the near term.

Labor unions called for government intervention. The Mart Industry Union under the Korean Confederation of Trade Unions issued a statement demanding that "all possible emergency measures, including the injection of public funds, be taken within 14 days to devise a plan for Homeplus's recovery." The Homeplus General Union also called on MBK Partners and Meritz Financial to immediately inject 200 billion won within 14 days, and urged the government to "prepare measures for the 100,000 workers whose livelihoods are at stake in the Homeplus crisis."