Homeplus faces bankruptcy as calls grow for major shareholder to take responsibility

Homeplus is facing the prospect of bankruptcy as it approaches a critical deadline in its corporate rehabilitation proceedings. The central question is whether the retailer can raise 200 billion won ($129 million) by Tuesday.

The key to securing that funding is whether MBK Partners, the controlling shareholder, will provide a guarantee as demanded by creditor Meritz Financial Group. Meritz has said that without a personal guarantee and a show of accountability from MBK Chairman Kim Byung-ju, the major shareholder would in effect be signaling it has given up on Homeplus's recovery — and that under such circumstances, creditors would have no justification to inject additional funds.

Unless MBK changes its position, the rehabilitation process is on course to collapse. Should the court decide to terminate the proceedings, Homeplus would move into full bankruptcy.

Calls for major shareholders to take responsibility have arisen without exception whenever a company has faced crisis. In many cases, controlling shareholders have contributed personal assets. When Kumho Asiana Group was hit by a liquidity crisis across its entire conglomerate, the controlling family handed over all of its affiliate stakes and personal assets to creditors in the form of collateral and outright contributions. STX Group's controlling shareholder had its stake written down to zero as a penalty for management failures, and Hanjin Shipping's major shareholder also contributed personal assets when the company's business environment deteriorated sharply.

It is undeniable that MBK, as both the controlling shareholder and the entity that managed Homeplus, bears the greatest responsibility for the retailer's current bankruptcy crisis. Meritz said MBK has refused to make self-rescue efforts or inject real funds of its own, while demanding that Meritz, as the creditor, provide 200 billion won in debtor-in-possession financing on its own.

Meritz added that it had committed to providing 100 billion won in DIP financing — overriding shareholder objections and after heated board debate — on the condition that MBK and Chairman Kim provide a joint guarantee, only to be told that even a guarantee was out of the question. "MBK's evasion of responsibility can only be interpreted as meaning that even the controlling shareholder finds it hard to be confident in Homeplus's recovery," Meritz said.

Meritz also said that of the 400 billion won in support MBK claims to be providing, only about 40 billion won — Chairman Kim's personal contribution — constitutes pure cash. The remainder consists of loans in the form of common benefit claims and similar instruments.

Meritz has argued that a decisive move by Chairman Kim, as the controlling shareholder, is the only way to resolve the situation. Homeplus, Lotte Card and Nepa are among the companies MBK has invested in, and their financial health has deteriorated since MBK's acquisitions. In the process, MBK collected 1.2 trillion won in performance fees and other returns from its Blind Fund No. 3, which financed its investments in Homeplus and Nepa, among others.

When MBK acquired Homeplus in 2015, Chairman Kim held assets of around 800 billion won. This year, Forbes estimates his net worth at approximately 13.7 trillion won, placing him second on its list of South Korea's wealthiest individuals.

Meritz has said that a controlling shareholder who has accumulated wealth on that scale must demonstrate accountability for the Homeplus bankruptcy crisis. Its position is that creditors have no justification to provide additional financing to a company whose own major shareholder refuses to take responsibility. It has called on MBK and Chairman Kim to provide a joint guarantee alongside the 100 billion won DIP commitment, so that accountability is clearly established.

"MBK and Chairman Kim must immediately stop shifting risk onto others without making any self-rescue effort, and must step up with responsible personal asset contributions and guarantees," Meritz said.