Homeplus Files for Corporate Rehabilitation Procedure... "Proactive Response to Potential Funding Issues" (Comprehensive)

Normal Operations Continue Both Online and Offline Regardless of Rehabilitation Proceedings
All Trade Debts to Be Fully Repaid Even After Rehabilitation Filing
Employee Salaries to Be Paid as Usual
Strong Cash Generation Capacity
Early Stabilization Expected if Financial Costs Are Reduced Through Rehabilitation Proceedings

Homeplus filed for commencement of corporate rehabilitation proceedings at the Seoul Bankruptcy Court on the morning of the 4th. The company claims this is a proactive measure to address potential funding issues arising from a credit rating downgrade. Regardless of the rehabilitation filing, all operations including online and offline channel sales and transactions with partner companies will continue as usual.

Yonhap News

A Homeplus representative stated, "The credit rating announced on the 28th of last month did not sufficiently reflect many improvements such as increased online and offline sales and improved debt ratio, resulting in a downgrade." They added, "Due to the lowered credit rating, there is a possibility of issues arising in terms of short-term funding in the future, so we filed for rehabilitation proceedings today to alleviate the burden of short-term debt repayment. This filing is a preventive measure."

According to Homeplus, as of January 31 this year, the debt ratio and sales for the previous 12 months were 462% and 7.0462 trillion KRW, respectively. Compared to a year ago, the debt ratio improved by 1506%, and sales increased by 2.8%. However, according to credit rating agencies such as Korea Ratings and Korea Investors Service, Homeplus recorded operating losses ranging from 100 billion to 200 billion KRW for three consecutive years from the fiscal year ending February 2022 to February last year. The provisional deficit based on the third quarter financials up to November last year was 157.1 billion KRW. Additionally, as of the end of November last year, total borrowings amounted to 5.462 trillion KRW, with a borrowing dependency of 60.3% and a debt ratio of 1408%.

Korea Ratings noted, "Due to domestic demand sluggishness caused by the economic downturn, changes in consumer trends and channel shifts weakening offline foot traffic, and intensified competition due to increased e-commerce penetration, Homeplus’s poor operating performance has been prolonged. Although sales showed a recovery trend from 2023 supported by business strategies to regain competitiveness such as strengthening the food category and transitioning to mega food markets, the high fixed cost burden from an offline-centered business structure and cost increases due to inflation continued, resulting in persistently low profitability."

Korea Investors Service also stated, "Weakening domestic consumer sentiment, increased labor costs due to the Supreme Court’s expanded definition of ordinary wages, and changes in consumption patterns are limiting Homeplus’s profitability improvement," and downgraded Homeplus’s short-term credit rating from 'A3' to 'A3-'.

Homeplus explained that all operations including large marts, express stores, and online channels will continue to operate normally regardless of the rehabilitation filing. They added that if rehabilitation proceedings commence, repayment of financial claims will be deferred, but general trade debts with partner companies will be fully repaid according to the rehabilitation process, and employee salaries will be paid normally.

Homeplus expects that with the deferment of financial claims and reduced financial burden due to this rehabilitation decision, cash flow will improve in the future. The EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which reflects Homeplus’s cash flow, was 237.4 billion KRW for the previous 12 months as of January 31 this year. Given the nature of the distribution industry where most sales are cash-based, it is known that approximately 100 billion KRW of surplus cash flows in over one or two months.

Homeplus explained that excluding lease liabilities accounting for all rent payments during the remaining contract period, actual financial liabilities including operating fund borrowings amount to about 2 trillion KRW. Additionally, they hold real estate assets exceeding 4.7 trillion KRW, so they expect that once the rehabilitation plan is confirmed, negotiations with financial creditors will not be difficult.

A Homeplus representative said, "Despite the triple challenges of unreasonable regulations on large marts lasting over 10 years, the shift to online purchasing channels due to the COVID-19 pandemic, and the rapid growth of e-commerce companies such as Coupang and Chinese C-commerce, we have achieved sales growth for three consecutive years and are focusing on improving operating performance." They added, "Although we had to file for rehabilitation proceedings to prevent potential funding issues that might arise from the credit rating downgrade, all employees, labor unions, and shareholders will work together to overcome this wisely."

This content was produced with the assistance of AI translation services.