MBK to further slim down Homeplus before exit

MBK Partners has put one of the large store buildings of South Korea's supermarket chain Homeplus up for sale as part of an ongoing effort to improve the retailer's financial health ahead of its exit. 

The building of Homeplus Haeundae is located in Marine City Busan, a new luxury neighborhood lined with modern high-rise apartments. In proximity to one of the country's most beautiful beaches Haeundae, it is estimated at 300 billion to 400 billion won ($240 million-$315 million) in value. 

MBK recently distributed prospectuses on the property to potential buyers, according to investment banking sources on May 9. It is tapping real estate developers interested in demolishing the building to construct a high-rise residential-cum-commercial complex in the tourist destination.

Homeplus Haeundae is comprised of six floors above ground and one underground floor measuring 17,000 square meters. Homeplus will lease an underground space in its reconstructed building to continue its operations, the sources said.

In 2015, MBK acquired 100% of Homeplus for 7.2 trillion won from British retailer Tesco Plc, in its biggest-ever acquisition and the then-largest buyout transaction in Asia.

Homeplus operates 137 stores nationwide as of November 2021, trailing Shinsegae Group's E-Mart Inc.

MBK has transformed Homeplus' offline-focused business to gear toward e-commerce services, using all its stores also as logistics centers for the online business.

But it was late in the transition toward online businesses compared with its rivals, with e-commerce startups encroaching on the market at a rapid pace. 

Homeplus' sales were steady at 6.9 trillion won in the year ending in February 2021, versus 6.7 trillion won five years earlier.

But its operating profit dwindled by almost half to 93.3 billion won in the fiscal year of 2021 from 160 billion won a year earlier.

The poor results pulled its debt-to-equity ratio to as high as 860% at one point, and forced Korean rating agencies to cut their credit ratings sharply. 

Back in 2019, MBK had attempted to bundle Homeplus' 51 store buildings into a real estate investment trust and list it on the Korea Exchange, but the IPO plan faltered due to poor investor demand.

Since then, the private equity firm has turned to selling store buildings one by one. In the past two years, Homeplus had disposed of three store buildings, bolstering its cash and cash equivalents to 786.4 billion won as of end-2021, from 32.2 billion won a year earlier. The proceeds were used to repay debts.

Early this year, it embarked on the process to sell another store in Songdo, Incheon.

"Homeplus needs to raise money for investment to improve its competitiveness. To that end, asset securitization looks inevitable," said an investment banking official.

MBK also has been working on further streamlining Homeplus' operations through voluntary retirement programs, in addition to the sale of its outlets.

But its asset sales were sometimes blocked by Homeplus' unionized workers.

Last year, MBK stepped back from a plan to sell and close a store in Gaya, Busan, one of Homeplus' top five stores by sales. In the face of strong opposition from the retailer's labor union, it shifted to a sale and leaseback transaction for the property.

Write to See-Eun Park and Zi-Hoon Lee at seeker@hankyung.com
Yeonhee Kim edited this article.