Homeplus Labor and Management Urge DIP Financing as Cash Strain Deepens, Meritz and KDB Push Back

Homeplus Sees Payment Delays Spill Into Unpaid Supplier Bills and Wages Amid a Cash Crunch
Labor and Management Urge DIP Financing, Saying Support Is Needed to Normalize Operations
Potential DIP Lenders Meritz Financial and Korea Development Bank Show Limited Appetite for Additional Funding

Homeplus, a major South Korean big-box retailer, is seeing both labor and management jointly call for outside financial support. With cash shortages now constraining basic operations—including payments to suppliers and wages—the company argues that a large-scale debtor-in-possession (DIP) loan is essential for a turnaround. Potential lenders cited in the discussions, however, including Meritz Financial Group and the Korea Development Bank, are reportedly reluctant to back the plan.

Homeplus Sends an SOS to the Government

On the 3rd, the Homeplus General Labor Union said it will file a petition urging financial support, addressed to President Lee Jae-myung, Prime Minister Kim Min-seok, and Korea Development Bank Chairman Park Sang-jin. The union said Homeplus, which is undergoing corporate rehabilitation proceedings, is facing severe distress due to a lack of operating funds. It warned that the situation goes beyond the company’s survival and could threaten the livelihoods of many employees, trigger a chain of bankruptcies among partner firms, and deepen a downturn in local economies.

The union said payments for goods essential to store operations are being delayed and that even utility bills have fallen into arrears, putting normal business activity at risk. It also warned that the non-payment of January wages—and potentially February wages as well—would intensify employees’ hardship and could weaken consumer sentiment and further depress local economies. The union argued that the government should step in to ensure unpaid wages are paid immediately and that struggling partner companies receive payments as well, in order to prevent a cascading management crisis.

It stressed that to address the operating-fund shortage, the Korea Development Bank should move quickly to provide DIP financing, calling it a catalyst for successfully completing the rehabilitation process. In closing, the union reiterated the need to immediately resolve the January wage arrears and put in place support measures for partner firms struggling due to delayed payments to prevent a chain reaction of financial distress. It added that if operating funds are provided, the union and employees would actively cooperate in the rehabilitation process.

Whether DIP Financing Goes Through Is the Key Test

Homeplus management is making the same argument. In a statement released on the 20th of last month, the company said that “to carry out our restructuring and turnaround plan, it is important—and urgently necessary—that 300 billion won in funding be provided first through DIP financing,” adding that “if the loan is secured, operational difficulties will be resolved and we will be able to get back on track by executing the rehabilitation plan.” It also said that “supplier delivery rates have plunged to about 45% of last year’s level,” making normal store operations difficult, and warned that “given the nature of the retail business, if store operations are disrupted, the chances of rehabilitation will inevitably fall further.”

Homeplus previously included a 300 billion won DIP loan in the restructuring-focused rehabilitation plan it submitted to the Seoul Rehabilitation Court. The structure calls for MBK Partners, Meritz Financial Group, and the state-run Korea Development Bank to provide 100 billion won each. Management’s plan is to combine the funds secured through DIP financing with proceeds from the sale of Homeplus Express to improve business conditions this year. At an emergency roundtable at the National Assembly on the 21st of last month, Homeplus CEO Cho Ju-yeon said that before entering rehabilitation proceedings, the company required about 700 billion won in annual operating funds, adding that “considering the reduced store footprint, around 600 billion won should be enough to operate this year.” She emphasized that “if 300 billion won in DIP financing is added to another 300 billion won from the Express sale, Homeplus is a company that can be saved.”

Homeplus has also conveyed the same message to financial authorities. Hanmaeum Council, an employee representative body at Homeplus, visited the Financial Services Commission and submitted a petition appealing for DIP financing. “Because January wages have not been paid, employees are unable to cover basic living expenses such as utilities and their children’s academy fees,” the group said, adding that “even attempts to take out loans have failed because unpaid health insurance premiums make borrowing impossible, leaving workers unable to sustain their livelihoods.” It argued that “given the desperate situation employees are facing, the government must step in as quickly as possible with active support measures, including emergency operating-fund loans, to restore the company to normal operations.”

Meritz and KDB Maintain a Cautious Stance

Whether Homeplus’s plan can be realized remains uncertain, as both Meritz Financial Group and the Korea Development Bank (KDB) are maintaining a skeptical view of providing DIP financing. According to law firm Yulchon, which represents the Homeplus creditors’ committee, Meritz Securities, Meritz Fire & Marine Insurance, and Meritz Capital submitted an “other” opinion last month on Homeplus’s rehabilitation plan. Meritz Securities noted that “when liquidation value exceeds going-concern value, the principle is to terminate rehabilitation proceedings and move to bankruptcy,” adding that “allowing a liquidation-type rehabilitation plan while maintaining rehabilitation proceedings in such circumstances could leave creditors worse off than liquidation through bankruptcy, making it economically unfavorable.”

Meritz Financial Group is widely seen as having judged that providing additional operating funds to a company that should have been liquidated from the outset is difficult to justify from a risk-management perspective. Homeplus’s liquidation value has been assessed at 3.6816 trillion won, roughly 1.17 trillion won higher than its going-concern value of 2.5059 trillion won. In principle, when liquidation value exceeds going-concern value, court approval of a rehabilitation plan is difficult. Even so, Homeplus is pursuing a liquidation-style rehabilitation that assumes the sale of certain assets.

KDB is also reportedly reluctant to meet Homeplus’s request. A market expert said that “while KDB is a policy lender, it also has the characteristics of a commercial bank, weighing credit assessments, collateral, and recovery prospects,” adding that “it cannot simply inject large amounts of capital into Homeplus, which is already widely viewed as having missed the golden window for rehabilitation.” The expert also warned that “a premature injection of public funds into Homeplus could spark controversy over fairness.”