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Homeplus enters corporate rehabilitation to head off effects of credit rating drop

Published: 04 Mar. 2025, 18:10 Updated: 04 Mar. 2025, 18:31

KIM JU-YEON
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Homeplus's Yeongdeungpo District branch in western Seoul on March 4. The supermarket chain entered corporate rehabilitation the same day. [NEWS1]

Homeplus entered corporate rehabilitation procedures Tuesday in a move that Korea's second-largest supermarket chain said was made pre-emptively to counter liquidity concerns, especially short-term cash flow, after its credit score dropped.

The firm filed for corporate rehabilitation shortly after midnight on Monday, which was approved by the Seoul Rehabilitation Court around 11 hours later.

The court said it greenlit the restructuring process as it projected Homeplus to be short on funds by May should its debts remain unsettled, as its lowered credit rating could raise financing costs due to a perceived risk. The court found Homeplus to be able to carry out short-term payments, such as to partnered suppliers.

Credit rating agencies lowered the supermarket’s commercial paper credit rating from A3 to A3- on Feb. 28. The Korea Investors Service attributed the downgrade to HomePlus’s weakened profitability, debts larger than its inbound cash flow and uncertainty about its mid- to long-term competitiveness.

Homeplus said in a news release Tuesday that an increase in sales online and offline and improvements to its debt-to-equity ratio were not reflected in the credit rating evaluation.

The firm had a debt ratio of 462 percent and made 7.46 trillion won ($5.1 billion) in sales in the 12 months up to Jan. 31; a 1,506 percent improvement to its debt ratio on year and a 2.8 percent increase in sales, Homeplus said.

The chain recorded operating losses for three consecutive years. In the fiscal year from March 2023 to February 2024, Homeplus posted 199.4 billion won in operating losses and a net loss of 574.3 billion won, an improvement from the 260.18 billion won in operating losses posted a year prior.

The firm’s total liabilities, excluding lease liabilities that account for rent payments for the remaining contract period, is around 2 trillion won.

Shoppers look at items at Homeplus's Yeongdeungpo branch in western Seoul on March 4. The supermarket chain's stores are operating as usual, regardless of the firm entering corporate rehabilitation that day, according to Homeplus. [NEWS1]

Homeplus blamed “unfair regulations against supermarkets in place for more than a decade” and consumers’ pivot to online shopping following the Covid-pandemic for its drop in profitability, but said it was committed to improving its sales. The court’s quick approval to enter corporate rehabilitation demonstrated that the firm’s core business and competitiveness were intact, Homeplus said.

Corporate rehabilitation will delay the supermarket chain's bond payments but allows the firm to pay back short-term payments generated from general transactions with partners and pay employees at the same rate.

The chain will also be allowed to start the rehabilitation process under the current co-CEO management system without appointing a separate administrator. The chain is currently headed by CEO Joh Ju-yeon and MBK Partners Vice Chairman Kim Kwang-il.

A consortium led by investment firm MBK Partners acquired Homeplus in 2015 for 7.2 trillion won from British retailer Tesco.

Homeplus stores — supermarkets, the smaller Homeplus Express and its online mall — will operate as usual, according to the firm. The chain operates around 126 supermarket branches, the most after market leader Emart. The company employs around 20,000 people.

"A swift decision by the court is of great help. The company’s employees and shareholders will work together to conclude the rehabilitation process as quickly as possible to fulfill the expectations of Homeplus,” a company spokesperson said.

BY KIM JU-YEON [[email protected]]