Homeplus CI

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South Korean discount store Homeplus, which entered court-led corporate rehabilitation on March 4, has formally requested reductions in store rent and financial debt as part of its restructuring plan, court filings revealed on Thursday.

The move suggests that private equity firm MBK Partners Ltd., which acquired Homeplus in 2015 and later filed for court receivership, is now seeking relief from mounting lease and financial obligations.

According to documents submitted to the court, Homeplus stated that its restructuring plan must prioritize reducing fixed costs and financial burdens.

The retailer acknowledged that despite generating cash flow from operations, it is insufficient to cover lease liabilities and debt repayments, leading to negative financial cash flow.

As of January, Homeplus carried total liabilities of 8.5 trillion won ($5.8 billion), including 2.4 trillion won in lease liabilities, of which 1.01 trillion won is due within a year.

The company also holds 1.1 trillion won in redeemable convertible preferred shares, 1.6 trillion won in long-term borrowings, 550.5 billion won in trade payables, and 381.9 billion won in short-term debt.

A significant portion of these liabilities stems from lease payments following MBK’s sale and leaseback strategy, in which the company sold 15 stores for 1.86 trillion won but continued leasing the spaces.

As store lease costs surged amid a struggling retail sector, Homeplus’s financial structure weakened, leading to growing debt.

The company currently operates 126 stores nationwide, of which 58 are company-owned and 68 are leased.

However, even its company-owned properties were used as collateral for a 1.2 trillion won loan from Meritz Financial Group, adding financial strain.

Homeplus’s annual lease payments for its 68 rented stores total about 400 billion won, meaning the company pays close to 5 billion won per store each month.

A retail industry source noted that monthly rents for large retail stores in metropolitan areas typically range from 200 million to 300 million won, suggesting that Homeplus may have agreed to excessively high lease terms during its sale-and-leaseback deals.

The company’s filing also estimated that its cash shortfall, which reached 18.4 billion won on March 17, could rise to 739.5 billion won by the end of May.

Homeplus argued that it had no viable option to secure liquidity after its credit rating downgrade, necessitating a proactive approach to restructuring.

Meanwhile, some suppliers have begun halting deliveries to the embattled retailer. Seoul Milk, Korea’s largest dairy producer, stopped supplying products to Homeplus and Homeplus Express as of Thursday.

“There are currently no plans to resume deliveries,” said a Seoul Milk official, adding that discussions on payment terms are ongoing.

Nongshim, the country’s top instant noodle maker, also temporarily suspended deliveries to Homeplus from March 19 to 20.