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Will Homeplus liquidation decision be postponed again?
Shoppers are seen at a Homeplus store in Seoul, Tuesday. Yonhap
By Jun Ji-hye
Retailer submits revised rehabilitation plan without court-mandated $129 million capital injection
Homeplus has submitted an amended rehabilitation plan just three days before a court deadline, but its failure to secure a crucial 200 billion won ($129 million) capital injection is increasing uncertainty over whether the troubled retailer will face liquidation, industry sources said Wednesday.
The Seoul Bankruptcy Court will now assess the feasibility of the revised proposal to determine whether to continue with rescue proceedings or dissolve the company. Although the current deadline expires this Friday, expectations are rising that the court will defer the date once more to review the new submission.
The country’s second-largest retail chain, controlled by private equity firm MBK Partners, filed for corporate rehabilitation on March 4 last year after struggling with financial difficulties and facing credit rating downgrades.
The original deadline for court approval of its rehabilitation plan was March 4 this year, but the court first extended it to May 4 before granting an additional extension until this Friday.
Bankruptcy law dictates that a rehabilitation scheme must receive approval within 12 months of initiation, but allows for a maximum six-month extension for unavoidable delays, pushing the final legal deadline to Sept. 4.
A broad coalition of Homeplus stakeholders including its creditors’ committee, labor union and shareholders have reportedly submitted petitions requesting that the court extend the deadline.
According to court officials, the cash-strapped retailer submitted its amended restructuring proposal at 6:58 p.m. on Tuesday.
The revised plan centers on downsizing measures, including the sale of its supermarket arm Homeplus Express, the closure of 37 outlets and workforce reductions.
“The court, alongside a court-appointed examiner, will review the viability of the revised rehabilitation plan,” the court said in a statement. “If deemed feasible, the plan will be put to a vote at a meeting of creditors and stakeholders. If found unfeasible, the court will reject the proposal and terminate the restructuring proceedings.”
The latest restructuring proposal, however, omitted the crucial capital injection requested by the court, heightening the risk that the retailer could face terminal liquidation.
The court had ordered Homeplus to secure a minimum of 200 billion won in fresh financing as a condition for its survival plan.
While the retailer sought debtor-in-possession financing from its largest creditor, Meritz Financial Group, the lender approved only 100 billion won. Furthermore, Meritz conditioned the release of those funds from an escrow account on a personal guarantee from MBK Partners Chairman Michael ByungJu Kim.
MBK has denounced the conditions as “practically impossible to meet,” triggering a bitter blame game between the two sides over who will bear responsibility if the retailer collapses.
Should the court rule that Homeplus’ financing strategy remains inadequate without the full 200 billion won, it could reject the rehabilitation plan or terminate the rehabilitation proceedings altogether.
Members of the Homeplus and Korea Zinc labor unions hold a joint press conference criticizing MBK Partners at Gwanghwamun Square in Seoul, Tuesday. Newsis
The retailer’s labor union has urged the court to extend its restructuring deadline, warning that a collapse would “devastate the livelihoods of thousands of workers and small business owners.”
The union also called on MBK and Meritz Financial Group to “stop blaming each other and act responsibly to resolve the crisis.”
In a rare move, the union has even joined forces with the labor union of Korea Zinc, which is currently embroiled in a high-profile management control battle against an alliance of MBK and Young Poong.
In a joint press conference, the two unions argued that both the Homeplus restructuring crisis and "the hostile takeover attempt" against Korea Zinc stem from the same issue, which they described as “the greed of private equity funds.”
Politicians from the ruling Democratic Party of Korea urged the government to mediate Homeplus’ financing deadlock, warning that liquidating the retailer could trigger an economic crisis.
“If Homeplus is pushed into liquidation because of the irresponsible attitude of its controlling shareholder and creditors, it will threaten up to 100,000 households and become a national livelihood disaster,” Rep. Min Byoung-dug said. “We strongly urge the government to provide administrative support and actively mediate the situation.”
Rep. Kim Nam-geun noted that some capital has already been secured, including 120 billion won expected from the sale of Homeplus Express.
“We will ask the court to grant additional time for the rehabilitation plan,” Kim said.