Seoul: Homeplus Co., a discount store chain in South Korea, announced on Tuesday that 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 proceedings after reviewing the company's application submitted earlier in the day.
According to Yonhap News Agency, Korea Investors Service and Korea Ratings Inc. downgraded Homeplus' corporate bonds from A3 to A3- last week, citing insufficient efforts to improve financial health. On Tuesday, the ratings were further downgraded from A3- to D due to the initiation of the rehabilitation procedure, which restricts the company from paying debts until the process is completed.
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 noted 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 signifies that Homeplus' fundamentals, including its business value and competitiveness, remain intact. The company confirmed that the current management would continue to make key decisions, as no court-appointed manager has been designated. Homeplus operates 126 stores nationwide, slightly down from 131 a year earlier, with outlets functioning normally 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. However, the company has faced ongoing operating losses due to competitiveness issues against larger rivals like Emart Inc., South Korea's largest discount store chain.
Back in 2015, private equity fund MBK Partners acquired Homeplus for 7.2 trillion won, including 4.3 trillion won in loans, from British retailer Tesco Plc. Homeplus has since repaid approximately 4 trillion won of the loan.