As the timing for raising 300 billion won in DIP (debtor-in-possession emergency operating funds) proposed in the rehabilitation plan has been delayed, Homeplus Co.'s turnaround scenario is on the brink of survival. Homeplus Co. had planned to secure the DIP by last month, finish paying employee wages and settling supplier invoices, and normalize operations.
However, with Meritz Financial Group and the Korea Development Bank, which were asked to participate in the DIP loan, showing a lukewarm stance, the inflow of funds remains uncertain. Experts say Homeplus Co., which missed the "golden time" for rehabilitation, is effectively heading toward liquidation.
According to Homeplus Co. and the retail industry on the 1st, Homeplus Co. has been in arrears on various taxes and public charges for months. As delays in supplier payments have repeated, the supplier fulfillment rate has fallen to about 45% of normal, and store shelves are emptying out. In December last year, after wages were paid in installments, last month's payroll was postponed indefinitely. Recently, the company also began a voluntary retirement program for headquarters employees.
On Dec. 29 last year, Homeplus Co. submitted a "structure-innovation rehabilitation plan" to the Seoul Bankruptcy Court. It included: ▲ investing 300 billion won in DIP ▲ a spin-off sale of the supermarket chain "Homeplus Express" ▲ closing 41 underperforming stores ▲ improving the financial structure through workforce efficiency, among other measures.
Among these, raising the DIP is seen as the "lifeline" that will decide the fate of Homeplus Co.'s rehabilitation. MBK Partners, the largest shareholder of Homeplus Co., said on the 16th of last month, "The most urgent task for normalization is to secure emergency operating funds to run the company stably," adding, "If the emergency operating loan goes through, the chances of rehabilitation can rise by a notch."
Management at Homeplus Co. plans to improve this year's operations through the DIP and proceeds from the sale of Homeplus Express. Chief Executive Cho Ju-yeon said at an emergency forum at the National Assembly on the 21st of last month, "Before entering rehabilitation, Homeplus Co.'s one-year operating funds were about 700 billion won. Considering the reduced store footprint compared with before, we can operate on about 600 billion won this year," adding, "If 300 billion won in DIP is combined with 300 billion won from the Express sale, this is a company that can sufficiently be saved."
To that end, MBK proposed a structure in which it would shoulder 100 billion won on its own in the DIP raising process, while Meritz Financial Group, the largest creditor, and the Korea Development Bank would each participate with a 100 billion won loan. However, Meritz has been skeptical about supporting a DIP loan, and the Korea Development Bank, a policy finance institution, is also keeping its distance.
Meritz reportedly submitted an "other" opinion on Homeplus Co.'s rehabilitation plan on the 6th of last month, saying, "If liquidation value exceeds going-concern value, the principle is to terminate rehabilitation proceedings and move to bankruptcy." It effectively signaled a reserved stance on a rehabilitation plan premised on raising a DIP.
If Homeplus Co. fails to secure the DIP, its rehabilitation scenario will inevitably take a hit. Earlier, Cho said, "If emergency operating funds are not secured within January, it will be impossible to pay not only employee wages but also product costs, and the clock on rehabilitation could stop in its tracks."
The Hanmaeum Council, the employee representative body at Homeplus Co., also said in a petition on the 30th of last month, "If emergency operating fund support is not provided as soon as possible, normalization of the company will become remote," adding, "To break the chain of suffering employees are going through right now, the loan must be executed immediately."
In the current situation, some analysts say the only way for Homeplus Co. to secure cash immediately is a swift spin-off sale of Homeplus Express. As Homeplus Co. has lowered its asking price compared with before, observers say the likelihood of a deal has emerged.
Lee Jong-u, a professor of business administration at Ajou University, said, "When a sale of Homeplus Express was pursued once in the past, the price talked about was around 800 billion won, but in a situation where the price has fallen to 300 billion won as now, there may be corporations that take interest."
However, even if some funds flow in, some say it will be difficult to put the business back on a normal track when Homeplus Co. has already missed the "golden time" for rehabilitation.
Hwang Yong-sik, a professor of business administration at Sejong University, said, "Even if funds flow in now, Homeplus Co. is in a state where resuscitation is difficult," adding, "If MBK truly wanted to save Homeplus Co., there was clearly a time when it should have injected funds, but that did not happen. Now it is naturally moving toward liquidation."
Lee said, "MBK should have never given up, at least, on keeping stores operating normally to the end. Homeplus Co. is already seeing customer churn deepen due to weakened product sourcing competitiveness," adding, "In the end, looking back, it can only be seen that MBK intended from the start to drag things out and liquidate Homeplus Co."