Korea Investment & Securities noted on the 13th that the application for court receivership (corporate rehabilitation procedure) by Homeplus would not significantly affect the overall credit market, but there could be a spread of caution in sectors with poor business conditions, including construction.
Kim Gi-myeong, a researcher at Korea Investment & Securities, predicted that the impact on institutional investors would be limited, as Homeplus' credit rating was also A3 (mapping to BBB long-term rating), making it not a grade that can be purchased except for high-yield funds. He pointed out that the 'Legoland incident' in 2022, which shook the credit market, was caused by unexpected defaults on bonded municipal government securities, resulting in a significant shock, but this situation is different as it has occurred among non-investment grade companies in vulnerable industries.
However, Kim noted that there is a possibility of capital pressure shifting to poorly performing sectors such as construction and petrochemicals. In particular, in the construction sector, companies like Shin Dong-A Construction, Daeejeong Construction, SAMBU Construction, Samjeong Corporation, Ankang Construction, Daewoo Shipbuilding & Marine Engineering, and Byucksan Engineering have applied for court receivership one after another this year.
Kim observed that there would be differences in the response capabilities between sole corporations that would struggle to expect shareholder support and group affiliates that could receive such support. He stated, "For instance, construction companies affiliated with groups, such as Lotte Construction, which is raising funds by creating an asset-backed commercial paper (ABCP) purchase fund with the support of affiliates, Shinsegae Engineering & Construction, which was fully incorporated as a subsidiary of Emart with financial support from the group, and SK Ecoplanet, which is expected to improve financial stability by incorporating subsidiaries that are generating stable operating profits, are resolving liquidity issues under support, while the market's caution may focus on sole corporations within the construction sector."
Kim assessed that Meritz Financial Group would have no problems with capital recovery. Meritz Financial Group granted a collateral loan with a limit of 1.3 trillion won after entrusting 62 Homeplus stores as collateral, securing the first priority revenue rights. The trust assets can be secured even after the initiation of the corporate rehabilitation procedure, and the loan-to-value ratio (LTV) is around 25%.
Kim said, "There should not be any issues for Meritz Financial Group in recovering debts, but the situation may involve practical considerations for employment issues during the process of disposing of collateral, which adds uncertainty to the timing of debt recovery."
Kim addressed concerns related to MBK Partners, which acquired Lotte Card, possibly applying for court receivership like Homeplus and stated, "Credit card companies that perform payment functions are not in a position to go bankrupt or apply for corporate rehabilitation, so there should be no significant issues."
He added, "While Homeplus prioritized repayment of acquisition finance through store sales, Lotte Card is pursuing an exit through the sale of management rights, maintaining overall operating performance at a healthy level without any outflow of company resources."