As Homeplus, the country's second-largest hypermarket, enters corporate rehabilitation proceedings, there are concerns that corporate bond (CP) and short-term bond investors may suffer losses of hundreds of billions of won.

According to the Korea Securities Depository on the 5th, as of the previous day, Homeplus had 116 billion won in general corporate bonds (CP) and 70 billion won in short-term bonds maturing. Combined, this amounts to 186 billion won. Most of these bonds are reported to have been sold through the retail departments of major securities firms.

On the morning of the 4th, the appearance of the Homeplus Yeongdeungpo branch in Yeongdeungpo-gu, Seoul, which applied for the initiation of the corporate rehabilitation procedure./Courtesy of News1

The possibility of creditor losses could increase depending on how Homeplus's rehabilitation progresses. Following the initiation of the rehabilitation process, credit rating agencies downgraded the credit ratings of Homeplus's CP and short-term bonds from 'A3-' to 'D', the lowest rating in the speculative grade. Currently, there is no obligation to repay.

The 600 billion won invested by the National Pension Service is also at risk of loss. MBK Partners created a special purpose corporation (SPC) when it acquired Homeplus in September 2015 and issued redeemable convertible preferred shares (RCPS) through this SPC, raising about 700 billion won. At that time, MBK received around 600 billion won in RCPS investments from the National Pension Service.

Homeplus will repay in the order of 'secured creditors-unsecured creditors-investors in RCPS issued by SPC-institutional investors that invested in SPC', raising concerns that the National Pension Service investment could incur losses. There are also speculations that the total RCPS investment amounting to 700 billion won, including the 600 billion won from the National Pension Service investment, may fall into the loss section.

MBK Partners noted the previous day, 'The rehabilitation process for Homeplus is intended to proactively alleviate future potential short-term financing burdens caused by the credit rating downgrade.' They added, 'If financial debts and such are deferred due to the corporate rehabilitation decision, the cash flow is expected to improve significantly in the future,' and 'We will aim to conclude the rehabilitation process as quickly as possible.'

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