Meritz's funding condition pushes Homeplus closer to bankruptcy

Homeplus' Jamsil branch in Seoul's Songpa District remains closed, June 5, amid the retailer's court-led rehabilitation process. Yonhap

Meritz Financial Group has approved 100 billion won ($66 million) in emergency financing for Homeplus, the struggling retailer currently undergoing court-led rehabilitation, the company said Thursday.

The approval, however, falls short of the 200 billion won sought by Homeplus. Meritz also stipulated that the funds can only be drawn if MBK Partners, the private equity firm that controls the retailer, and MBK Chairman Michael ByungJu Kim provide legally valid and enforceable joint guarantees, casting doubt on whether the financing will ultimately be disbursed.

The conditions have heightened concerns over Homeplus' restructuring prospects, with industry observers warning that the retailer could face bankruptcy if it fails to secure sufficient funding before a key court deadline in July.

According to Meritz, its board approved the 100 billion won debtor-in-possession (DIP) loan at a meeting on Wednesday.

Rather than being disbursed immediately, the funds will be placed in an escrow account. Homeplus will be able to access the money only after meeting the additional conditions set by the lender.

Meritz said it imposed the requirement amid growing shareholder opposition to providing further financial support to Homeplus and because of legal obligations under the revised Commercial Act, including directors' duty to act in the best interest of shareholders.

"The approved funding will be released as soon as the guarantees provided by MBK Partners and its chairman are confirmed to be legally valid and binding," a Meritz official said.

"MBK Partners, as Homeplus' controlling shareholder and the party ultimately responsible for its management, should demonstrate its commitment by providing an additional 100 billion won and taking meaningful steps to support the retailer's turnaround."

Meritz Tower in Gangnam District, Seoul / Courtesy of Meritz Financial Group

Meritz, which extended 1.2 trillion won in loans to Homeplus in 2024, is the retailer's largest creditor. The company said the additional financing was intended to fulfill its social responsibility as a financial institution by supporting the rehabilitation of the country's second-largest supermarket chain.

Still, the latest decision has added fresh pressure to Homeplus' restructuring efforts.

Under the revised rehabilitation plan, the retailer needs at least 200 billion won to extend the rehabilitation process and continue operating independently. Meritz's decision means it will provide only 100 billion won, within the scope of guarantees offered by MBK, leaving the remaining 100 billion won to be raised directly by the private equity firm through loans or other funding sources.

Industry observers said Meritz's request could prove difficult for MBK to accommodate, given that the private equity firm has already injected about 500 billion won into Homeplus through a combination of corporate guarantees, personal guarantees from Kim and direct lending.

They also noted that MBK has limited flexibility to commit additional capital since investor funds are largely locked into existing private equity structures.

Homeplus faces a July 3 deadline to obtain court approval for its rehabilitation plan. Failure to secure the full 200 billion won in DIP financing by then can significantly diminish the retailer's chances of obtaining an extension of the rehabilitation process.

"The court could conclude that Homeplus has little prospect of raising the required funds and may therefore move toward bankruptcy proceedings rather than grant additional time for rehabilitation," an investment banking industry official said.

Homeplus reiterated its request for 200 billion won in DIP financing, saying the funding is critical to its court-led restructuring.

The retailer said its recovery prospects would improve significantly if its restructuring plan centered on 67 key stores is carried out successfully.

"Securing 200 billion won in emergency operating funds is essential, as the success of the rehabilitation process ultimately hinges on the successful sale of the remaining business operations," a Homeplus official said.