Homeplus’ financial crunch explained in 2 minutes

The Seoul Bankruptcy Court approved South Korea’s No. 2 supermarket chain Homeplus’ corporate rehabilitation request just 11 hours after filing on March 4.

The company called it a preemptive move to manage short-term debt after a credit downgrade.

On Feb. 28, Korea Investors Service downgraded Homeplus’s credit rating from A3 to A3- due to weak profitability and high debt. After court-approved rehabilitation, it dropped to D on March 4.

However, concerns over Homeplus’ financial health have deepened, with scrutiny mounting on MBK Partners, the private equity firm behind the struggling retailer.

1997: Homeplus was founded as part of Samsung C&T’s retail division.

1999: Following the Asian financial crisis, Samsung sold a 49 percent stake in Homeplus to British retailer Tesco, forming a joint venture.

2011: Samsung sold its remaining 51 percent stake, making Tesco the sole owner of Homeplus.

2015: Private equity fund MBK Partners, in a consortium with the Canada Pension Plan Investment Board, the Public Sector Pension Investment Board and Temasek, acquired Homeplus for 7.2 trillion won ($4.9 billion).

Since MBK Partners took over, Homeplus has struggled to break past the 8-trillion-won annual revenue mark — a threshold it last exceeded in 2014, a year before the acquisition, with 8.56 trillion won in consolidated sales.

Homeplus logged annual sales of 7.93 trillion won in 2016 and 7.94 trillion won in 2017, but its revenue then entered a four-year decline, dropping from 7.65 trillion won in 2018 to 6.48 trillion won in 2021.

Despite reverting to an upward trend in sales over the past years — rising to 7.04 trillion won as of January this year — it has remained in the red, posting operating losses for three consecutive years: 133.5 billion won in 2021, 260.2 billion won in 2022 and 199.4 billion won in 2023.

In the first three quarters of 2024, Homeplus recorded operating losses of 157.1 billion won.

According to the company, its current debt ratio stands at 462 percent, marking an improvement from last year’s 1,506 percent. Excluding lease liabilities, Homeplus’ financial debt, including borrowing for operating funds, amounts to approximately 2 trillion won.

While Homeplus blamed heavy regulations and e-commerce growth for its downturn, much of the criticism is directed at MBK Partners.

Its 7.2 trillion won acquisition, which included Homeplus’ existing debt, comprised 3.2 trillion won funds from a blind fund with the remaining funded through acquisition financing loans.

The private equity firm has liquidated over 4.1 trillion won in assets, selling off stores and land to repay debt. Since the acquisition, over 6,000 jobs have been cut, sparking a backlash that MBK prioritized debt repayment and asset liquidation over long-term growth, leading to a sharp decline in revenue and profitability.

MBK claims it did not anticipate Homeplus’ credit downgrade, continuing to sell commercial paper and short-term bonds to retail investors before the rating drop.

Homeplus asserts that its situation is not a case of general insolvency but rather a temporary financial restructuring under court-led rehabilitation.

While financial debt repayments are deferred, the company continues to operate as usual, ensuring trade obligations are met while securing agreements with key suppliers for continued product deliveries.

It has reassured suppliers and partners that payments will be made in phases, prioritizing small business owners and small and medium enterprises, while large corporations will receive payments in installments.

The company also highlighted its real estate holdings, estimated at over 4.6 trillion won, as a potential financial cushion.