'If Homeplus goes bankrupt, we go down with it,' say 4,603 suppliers

"If Homeplus enters bankruptcy proceedings, we have no choice but to collapse along with it."

The head of a small underwear supplier to Homeplus — identified only as A — made the remark in a phone interview Sunday. Homeplus accounts for 80 percent of the company's total sales, and after payment settlements began stalling earlier this year, the firm cut its workforce to roughly one-third of its previous size. Unpaid bills from Homeplus stand at about 600 million won ($459,000), and inventory produced specifically for Homeplus delivery amounts to another 700 million to 800 million won.

"We held on expecting that a decision on rehabilitation in July would give us some breathing room, but now that the court has ruled to terminate the proceedings, anxiety is spreading rapidly among suppliers," A said.

Company B, which supplies socks and other goods to Homeplus, is in a similar bind. Its outstanding receivables exceed 1 billion won. The cash-flow freeze has rippled outward to the firm's own original equipment manufacturer partners. "Some of our partners have already gone under," a company official said. "For small and medium-sized enterprises, even a few hundred million won failing to turn over on time can threaten their very survival."

The Seoul Bankruptcy Court's Fourth Division ruled Thursday to terminate the rehabilitation proceedings Homeplus had applied for, leaving the hypermarket chain at a crossroads, and the fallout is spreading quickly to its suppliers. If Homeplus fails to secure a 200 billion won financing plan and file an appeal within two weeks, it will enter formal bankruptcy proceedings.

Should Homeplus proceed to bankruptcy, suppliers' financial difficulties are expected to deteriorate sharply. Small and medium-sized enterprises heavily dependent on Homeplus are particularly at risk of a liquidity crisis, and there are fears that the resulting distress could cascade further to the smaller firms that supply those companies.

Homeplus has 4,603 suppliers of products and services, according to the company. About 47 percent of them rely on Homeplus for more than half of their total sales. Some have already been pushed to the brink of closure after failing to recover hundreds of millions of won in unpaid bills.

A survey by the Korea Federation of Small and Medium Business of 150 small and mid-sized Homeplus suppliers experiencing payment delays found that the average amount of unsettled payments owed to each firm reached 774 million won — a sum large enough to threaten the survival of a small business.

Among the surveyed firms, 40.7 percent had unsettled receivables of 500 million won or more; 16.7 percent were owed between 500 million and 1 billion won, while 24.0 percent were owed more than 1 billion won. Some 98 percent of respondents said their payments had been delayed by more than 60 days from the delivery date, meaning in effect that nearly all of the surveyed companies have gone months without recovering their receivables.

In response, the government has moved to prepare countermeasures. It plans to provide advance wage payments to Homeplus workers affected by unpaid salaries and to extend 440 billion won in emergency liquidity support to small supplier firms. However, with more than 4,600 suppliers in the network, some observers note that the support package alone may not be enough to prevent a chain of insolvencies.

"We'll have to think about next steps while watching what the government does," one supplier official said, "but realistically, it will be very difficult to recover all of the unpaid amounts."