Seoul: Homeplus Co., a discount store chain in South Korea, announced that it has commenced 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 reviewing the company's application submitted earlier in the day.
According to Yonhap News Agency, Korea Investors Service and Korea Ratings Inc. last week downgraded Homeplus' corporate bonds from A3 to A3-, citing insufficient efforts by the company to enhance its financial health. On Tuesday, the ratings were further lowered to D as the initiation of the rehabilitation process prevents the company from settling its debts until the procedure is concluded.
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 across its online and offline stores were not taken into account in the credit rating assessment.
The court's approval of the rehabilitation process suggests that Homeplus' fundamentals, including its business value and competitiveness, remain intact, according to the company. The current management will retain control over key decisions as the court did not appoint a manager for the company.
MBK Partners, the private equity firm that owns Homeplus, stated that the company is not experiencing liquidity issues but opted for court-led rehabilitation as a precautionary measure. Kim Kwang-il, vice chairman of MBK Partners, explained, "I know we've entered the procedure earlier than expected," adding that it's common for struggling Korean companies to make such decisions when other options are exhausted. "Managing a large company like Homeplus requires certainty," Kim remarked.
Homeplus currently operates 126 stores nationwide, a slight decrease from 131 a year earlier, but all outlets remain operational despite the rehabilitation filing. In the fiscal year ending February 2024, Homeplus reduced 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 a lack of competitiveness against larger rivals like Emart Inc., South Korea's leading discount store chain.
MBK Partners acquired Homeplus in 2015 from British retailer Tesco Plc for 7.2 trillion won, including 4.3 trillion won in loans. The company has since repaid around 4 trillion won of the loan.