Homeplus, a South Korean discount store chain with 126 stores, has filed for corporate rehabilitation with the Seoul Bankruptcy Court on March 4, citing concerns over short-term liquidity after its corporate credit rating fell last week.
The retailer said it filed for the rehabilitation program because of “short-term liquidity pressures that may arise after the downgrade.”
Korean credit rating agencies lowered the credit rating of Homeplus' corporate bonds from A3 to A3- on Feb. 28. Korea Ratings cited weakened profitability and growing uncertainty over the company’s medium- to long-term business competitiveness as reasons for the downgrade.
Homeplus stressed that the filing is a “precautionary measure” and that all operations, including stores and online channels, will continue business as usual. “The recent credit rating downgrade did not reflect the increase in sales and improved debt-to-equity ratio,” the company said.
As of late January, the company reported a debt-to-equity ratio of 462% and annual revenue of 7.046 trillion won ($4.9 billion) for the past 12 months. The company’s debt-to-equity ratio was up 1,506% year-on-year, and revenue rose 2.8% during the same period.
The Seoul Bankruptcy Court approved Homeplus’ corporate rehabilitation around noon on the same day. Once the rehabilitation begins, financial debt repayments will be deferred, while payments to suppliers will be fully settled.
The company’s earnings before interest, taxes, depreciation and amortization, or EBITDA, reached 237.4 billion won for the 12 months ending Jan. 31. Homeplus expects its financial position to strengthen as the restructuring eases debt obligations.
Homeplus, which operates 126 stores and employs about 20,000 people, is the second-largest retailer in Korea, behind Shinsegae Group’s e-mart chain. Its largest shareholder, private equity firm MBK Partners, acquired a 100% stake in Homeplus for 7.2 trillion won in 2015.
