Homeplus faces bankruptcy as court deadline looms

Court orders 200 billion won funding plan by Tuesday; bankruptcy possible if rehabilitation scrapped

Thousands of employees face joblessness as MBK and Meritz trade blame

Over 11,000 workers, partners urge government to intervene

Homeplus, currently undergoing court-led rehabilitation, is on the verge of bankruptcy after a Seoul court issued an ultimatum: secure 200 billion won ($129 million) in financing by Tuesday or face termination of its rehabilitation proceedings. The crisis comes 28 years after the hypermarket chain launched in 1997 as the discount retail arm of Samsung C&T.

The Seoul Rehabilitation Court sent letters on June 23 to Homeplus creditors, shareholders, labor unions and worker representatives, seeking opinions on "excluding the rehabilitation plan and terminating rehabilitation proceedings," according to industry sources. The court determined that securing the 200 billion won needed to execute the restructuring-focused rehabilitation plan Homeplus submitted late last year was not realistically feasible, and decided against putting the plan to a vote at a creditors' meeting. The court has demanded that Homeplus submit a concrete funding plan for the 200 billion won by Tuesday.

If the court terminates rehabilitation proceedings, Homeplus would enter formal bankruptcy, triggering a process to distribute its assets among creditors. Homeplus could technically reapply for rehabilitation, but the prevailing view is that such a reapplication would have little chance of success given the unresolved financing problem.

Homeplus had been pursuing 200 billion won in debtor-in-possession financing to secure emergency operating funds. It approached Meritz Financial Group, its largest creditor, for the full loan, but Meritz approved only half — 100 billion won. Meritz's reluctance stems from distrust of Homeplus's majority shareholder MBK Partners and concerns about potential breach-of-fiduciary-duty liability under current law, according to sources. Meritz says the 100 billion won it approved corresponds to the amount MBK had already guaranteed, and that MBK must independently raise the remaining 100 billion won.

Homeplus and MBK have pressed Meritz to provide the full 200 billion won in DIP financing, pointing to what they call Meritz's responsibility in the situation. Even after the court sent out its opinion letters, Homeplus issued a separate statement on June 24 arguing that in the event of bankruptcy, "Meritz Financial Group would recover its loan principal, interest and fees of 1.56 trillion won as the first-priority creditor through a private auction, recouping an estimated 1.8 trillion won or more." The statement added: "Please do not turn away from this tragic and unreasonable reality, in which the tears of ordinary people are being converted into 500 billion won in profits for a giant financial institution."

Meritz has demanded that MBK explain why chairman Kim Byung-ju — whose personal assets are valued at 14 trillion won — and MBK, which manages 50 trillion won in funds, cannot guarantee 100 billion won. Meritz has accused MBK of hiding behind the private equity fund regime to evade responsibility. On the 100 billion won loan it already approved, Meritz has also made Kim's personal guarantee a condition for disbursement. That guarantee has not been provided, according to sources.

While the two sides trade accusations, Homeplus employees have been pushed to the edge. June salaries have not been paid, and severance payments cannot be guaranteed. A bankruptcy ruling would also halt the planned sale of Homeplus's remaining business units — its hypermarket operations, online business and headquarters. Homeplus's workforce had fallen to 15,398 as of the end of April, with 2,588 employees leaving in just the first four months of this year, according to the Mart Industry Labor Union under the Korean Confederation of Trade Unions.

Employees have been issuing daily statements calling for government intervention. On Friday, 11,480 people — including members of Homeplus's employee council, the Hanmaeum Council, as well as suppliers and tenant merchants — signed a joint statement urging the government to "actively step in to ensure the 200 billion won operating loan is secured to prevent bankruptcy." The Homeplus general labor union also issued a joint statement with management, saying that "if assets can be wound down in an orderly manner with time granted through an extended rehabilitation period, debt repayment and even a full recovery are possible," and appealing for government assistance.

Homeplus employees sign a joint statement calling for government intervention. [Homeplus]

soho0902@heraldcorp.com