MBK Partners could face challenges in fundraising while embroiled in controversies surrounding South Korea’s No. 2 hypermarket chain, as public funds turn wary due to compliance risks, according to industry sources.

Following Homeplus’ application for a court-led rehabilitation, MBK has been pressured by multiple governmental bodies. MBK wholly owns the discount supermarket franchise as a portfolio company.

In March, the National Tax Service launched a tax investigation into MBK. The Korea Fair Trade Commission is also looking into suspicions of alleged internal trading between MBK, Homeplus and local card issuer Lotte Card.

The Financial Supervisory Service has been conducting an investigation into MBK to determine whether it was involved in the issuance of short-term bonds for Homeplus while simultaneously planning the court-led rehabilitation behind the scenes.

On Thursday, FSS chief Lee Bok-hyun said the regulator has uncovered "meaningful facts" in its probe. Investors also warned they plan to sue the top executives of MBK if the private equity firm does not come up with follow-up measures soon.

Industry sources believe the legal uncertainties will pile greater pressure on MBK, as the firm relies heavily on public funds for limited partners.

“Public funds are usually very concerned about compliance. Any type of noise that questions the general partner’s lack of compliance can be a hurdle for the (limited partners) in making new investments. From such a perspective, the compliance risks place more pressure on MBK than the losses from investment failure,” an official from a local private equity firm said.

Similar to other big-name private equity firms here, MBK largely relies on public pension funds. The firm has been pooling money from funds in and out of Korea, such as the National Pension Service, Korean Teachers' Credit Union, Canada Pension Plan Investment Board and California Public Employees Retirement System.

Prior to the Homeplus failure, MBK failed to secure funding from public funds such as the Korea Scientists & Engineers Mutual-aid Association and another fund operated by the Korea Federation of SMEs last year. Though reasons were not specified, industry officials assume MBK’s involvement in the Korea Zinc proxy fight took a toll.

In March, the NPS issued a rare statement, saying it agreed to not participate in MBK investments related to hostile takeovers. The pension giant seldomly makes official comments on individual investments.

“In February, we finalized our agreement with MBK, explicitly including a condition prohibiting participation in hostile takeovers,” the statement read.

Industry officials assume it would be difficult for MBK to secure additional funding from public funds, especially those based in Korea, until its name is fully cleared.

“MBK’s (limited partners) had been aware that the Homeplus investment was going to be a failure. But the compliance risks come as a surprise. They would have to see whether the current controversies and probes will materialize into legal actions or not,” the official said.

Meanwhile, MBK asserted its fundraising of capital has been successful regardless of the controversies.

"These are regulatory probes on Homeplus, not legal investigations on our investment practice or compliance," a representative of MBK said.

"MBK Partners already have a hugely successful fundraise, with over $5 billion closed to date and with a strong backlog of orders."

By Im Eun-byel (silverstar@heraldcorp.com)