A Homeplus store in Seoul, Tuesday / Yonhap
Company stresses strong cash flow, operational stability
By Ko Dong-hwan
Homeplus, a leading discount retailer, filed for corporate rehabilitation with the Seoul Bankruptcy Court on Tuesday following a downgrade of its short-term credit rating by Korean authorities from A3 to A3- last month.
The court quickly approved the request later that day, noting the company's fundamentals, including business competence and market competitiveness, were not at risk. It also decided to allow the company to keep its co-representative governance instead of appointing a new legal representative.
The company noted that the bankruptcy filing was “merely preemptive” and does not affect its current operation of on and offline retail businesses nationwide. The company currently runs over 460 offline stores nationwide.
Homeplus, wholly owned by private equity fund MBK Partners, said the filing was a precautionary measure to address "potential cash problems” that might occur following the credit rating downgrade. Korea Investors Service and Korea Ratings issued the company's rating on Friday.
Homeplus said that its latest ratings did not take into account its achievements in sales and debt ratio last year.
According to the company, its debt ratio as of Jan. 31 stood at 462 percent, and sales from last year totaled over 7.46 trillion won. Compared to the previous year, the debt ratio improved by 1,506 percent, while sales increased by 2.8 percent, respectively.
“We made many improvements last year, but they were not fully considered in the evaluation, which led to the decline in our credit rating,” a Homeplus official said.
Homeplus emphasized that despite the bankruptcy filing, its offline superstores, online platforms and delivery service (provided by Homeplus Express) remain fully operational. Commercial trades with its partner companies also remain unaffected, it added.
Homeplus said that with the court’s approval of the bankruptcy filing, it will fully pay back its debts from its usual business operations and remunerate its employees in full amount while its due redemption of bonds gets withheld.
The company said that with its financial pressure lessened following the withholding of its due redemptions of bonds, its cash balance will “improve by a great deal,” thanks to its consistently strong sales. According to Homeplus, its annual earnings before interest, taxes, depreciation and amortization consistently increased, logging 237.4 billion won ($163 million) as of January. The company added it also has a history of zero-default records.
“We usually see a surplus of about 100 billion won every one or two months because of the distribution industry’s unique cash-centered operations,” the official said, noting the company’s strong cash liquidity.
Homeplus said its current total financial liabilities amount to about 2 trillion won. However, considering its real estate assets, which are valued at over 4.7 trillion won, the company expects to resolve its outstanding financial liabilities "without much difficulty."
The official said the company’s main goal now is to secure its cash reserve and stabilize cash flow in the short term.
“We have seen unfair government policies enforced for the past decade, declining offline market sales following the boom of online platforms during the global COVID-19 pandemic, and rising market influence from e-commerce giants like Coupang and Chinese firms,” the official said, mentioning the largest hurdles the company recently encountered.
“Despite such difficulties, we have accomplished an increase in sales three years in a row. Now, all the employees, members of the company’s labor union, and shareholders are focusing on further improving our performance. It would also be great if we saw our credit rating jump back again.”
English (United States) ·