Homeplus secures emergency loan, but road to recovery remains long

A bankruptcy that had seemed all but certain for Homeplus took a dramatic turn after majority shareholder MBK Partners and top creditor Meritz Financial Group agreed on a 200 billion won ($134 million) debtor-in-possession loan. If the DIP financing goes through, Homeplus is expected to resume its court-led rehabilitation proceedings — and stores that have shuttered across the country could reopen. But the path to a full recovery remains steep.

According to political and retail industry sources, the agreement between MBK Partners and Meritz Financial Group came together in tense, hour-by-hour negotiations on Wednesday. The Democratic Party of Korea raised the pressure by announcing plans to hold a parliamentary hearing on the Homeplus crisis on July 27. Behind the scenes, National Assembly Financial and Economic Affairs Committee Chairman Yoo Dong-su led mediation efforts. By the afternoon, MBK Chairman Kim Byung-ju had agreed to provide a joint-and-several guarantee for the full 200 billion won, and Meritz Financial Group accepted the terms, sealing the deal.

The Homeplus general labor union also stepped back from its earlier demand that severance payments be made to laid-off workers and reassigned staff from 37 closed stores before any DIP funds were disbursed, clearing the way for the 200 billion won to be used for store operations. A four-way meeting among the Ministry of Employment and Labor, MBK Partners, Meritz Financial Group and the union — originally scheduled for that afternoon — was delayed by several hours during the mediation process.

MBK Partners and Meritz Financial Group had been locked in a standoff for months over Kim's personal guarantee. With the two sides at an impasse, speculation had mounted that Homeplus could file for connected bankruptcy at the Seoul Bankruptcy Court as early as Thursday. Analysts say sustained pressure from the government and lawmakers was a decisive factor in Kim's decision to provide the guarantee.

Earlier this month, the Financial Supervisory Service decided to impose heavy sanctions on MBK Partners over the Homeplus crisis, including a possible suspension of duties, with a final vote by the Financial Services Commission still pending. If the sanctions are confirmed, MBK could be barred from receiving new capital commitments from major public pension funds, including the national pension. The Democratic Party has also signaled it may push for legislation requiring major institutional investors such as the national pension to withdraw their investments from MBK Partners.

The prospect of being called as witnesses at a parliamentary hearing also weighed on both MBK Partners and Meritz Financial Group. The National Assembly's Financial and Economic Affairs Committee had planned to hold a session Wednesday and adopt a hearing agenda under Democratic Party leadership, but put the move on hold once the DIP loan agreement was reached.

Homeplus said it plans to file an immediate appeal with the Seoul Bankruptcy Court once the DIP funds are disbursed, and will reopen stores if the court decides to resume the rehabilitation process. However, getting stores back up and running is expected to take considerable time. "We need to resolve the utility shutoff notices that have been sent to stores nationwide and negotiate product supply arrangements with vendors," a Homeplus official said. "Nothing has been confirmed at this point."

Even if operations resume, the challenges ahead are formidable. A successful rehabilitation will require Homeplus to sell its remaining business units — its hypermarket operations, online business and headquarters. The revised rehabilitation plan the company submitted to the court this year calls for selling 19 closed stores as well as pursuing a merger and acquisition of the remaining business units. Finding a buyer will not be easy given the prolonged slump in brick-and-mortar retail. The September sale of its Daejeon Yuseong and Dong-Gwangju stores is expected to bring in 170 billion won, but that money will almost certainly go to Meritz Financial Group as the primary secured creditor.

"The 200 billion won is nothing more than a stopgap," a retail industry official said. "Without finding a buyer, Homeplus will face the threat of bankruptcy again at any moment."