Meritz weighs emergency loan for Homeplus, raising hopes of revival

Meritz Financial Group, the largest creditor of Homeplus, which is undergoing court receivership, has begun reviewing a 200 billion won (about $131 million) debtor-in-possession loan for the struggling hypermarket chain. The move suggests Meritz is feeling the weight of public criticism that it and Homeplus's majority shareholder, MBK Partners, have in effect been engineering a quiet liquidation.

According to industry sources, Meritz has reversed its earlier opposition to the DIP loan MBK had requested. MBK asked Meritz for the 200 billion won facility and offered to provide a joint guarantee on half — 100 billion won. On Wednesday, lawmakers from the Democratic Party of Korea's Euljiro Committee and the party's Homeplus task force held a rally outside Meritz Securities' office in Yeongdeungpo-gu, Seoul, calling on the firm to extend financial support, and met with Meritz Securities CEO Kim Jong-min.

If the loan goes through, it would ease the severe cash crunch that has gripped Homeplus. The chain is also set to receive 120.6 billion won in proceeds this month from the sale of its supermarket unit, Homeplus Express, to NS Home Shopping, an affiliate of Harim Group. Combined with the DIP loan, Homeplus could secure more than 300 billion won — a development analysts say would also work in its favor at the rehabilitation court's scheduled review of its restructuring plan on July 3.

Should the court extend its deadline, Homeplus is expected to use the secured funds to pursue a return to normal operations. The company has already decided to permanently close 37 stores that had been shuttered, and has put its remaining hypermarket, online and headquarters divisions — excluding the supermarket unit — up for sale through mergers and acquisitions.

The deteriorating public mood is widely seen as the factor that finally brought MBK and Meritz to the table. The two sides had been locked in a standoff over the loan for two months. Meritz insisted on a personal guarantee from MBK Chairman Kim Byung-ju as a condition for any loan review, while Homeplus maintained that was out of the question.

In the meantime, Homeplus stores continued to close one after another, fueling accusations that the company was effectively on a path to liquidation. Critics argued that MBK stood to recoup its investment and exit, while Meritz could recover its bonds — giving both parties reason to favor a wind-down over a rescue. At a closed-door meeting hosted by the Democratic Party's Homeplus task force at the National Assembly on Monday, lawmakers reportedly lambasted the two sides, demanding to know whether they had already decided on liquidation.

Even if the loan is approved, many observers say whether it will actually lead to Homeplus's recovery remains to be seen. The funds are likely to be consumed first by overdue store maintenance fees and unpaid employee wages. The 100 billion won in emergency operating funds MBK had previously injected directly went largely toward clearing a backlog of unpaid salaries, according to people familiar with the matter. The 37 additional stores slated for closure are also unlikely to reopen.