Seoul: Homeplus Co., a discount store chain in South Korea, announced it has entered a court-led rehabilitation process following a decline in its credit rating due to liquidity concerns. The Seoul Bankruptcy Court approved the rehabilitation proceedings after assessing the company's application submitted earlier in the day.
According to Yonhap News Agency, on Friday, Korea Investors Service and Korea Ratings Inc. downgraded Homeplus' corporate bonds from A3 to A3- due to insufficient efforts by the company to enhance its financial stability. A Homeplus official stated, "We have decided to file for the rehabilitation program as there existed a possibility of a short-term liquidity crisis. This move is part of our preemptive efforts to avoid a liquidity crisis." The official also mentioned that the company's improved debt-to-equity ratio and increased sales in both online and offline stores were not considered in the credit rating evaluation.
The court's approval for the rehabilitation process indicates that Homeplus' business fundamentals, including its business value and competitiveness, remain intact. The current management will continue making key decisions, as the court did not appoint a court-appointed manager for the company. Homeplus operates 126 stores nationwide, slightly reduced from 131 a year earlier, and its outlets are functioning normally despite the rehabilitation filing.
In the fiscal year ending February 2024, Homeplus narrowed its operating losses to 199.42 billion won (US$137 million) from 260.18 billion won the previous year. The company has faced ongoing operating losses due to limited competitiveness against larger rivals like Emart Inc., South Korea's largest discount store chain.
In 2015, private equity fund MBK Partners acquired a 100 percent stake in Homeplus for 7.2 trillion won, which included 4.3 trillion won in loans, from British retailer Tesco Plc. Homeplus has since repaid approximately 4 trillion won of the 4.3 trillion-won loan.