Korean big-box stores see credit rating downgrades

Two credit rating agencies have lowered South Korean big-box retail giants’ credit profiles.

Korea’s top three big-box stores, Homeplus Co., E-Mart Inc. and Lotte Mart or their affiliates have seen downgraded profiles amid their worsening financial health.

Korea Ratings on Wednesday lowered its unsecured bond rating for Homeplus, owned by Asia’s major private equity firm MBK Partners, from the previous “A-“ with a negative outlook to “BBB+” with a stable outlook. The rating agency downgraded the retail chain’s commercial paper and asset-backed short-term bonds from “A2-“ to “A3+.”       

Homeplus’ competitiveness in the retail market has weakened due to the rapid growth of e-commerce platforms such as Coupang Inc. and Kurly Inc., Korea Ratings stated.

The grading also reflected Homeplus' slowdown in opening new stores and store renewals in the aftermath of soaring debts since MBK Partners acquired it for 7.2 trillion won from UK-based retail giant Tesco PLC in 2015.     

Homeplus’ worsened earnings were also reflected in the rating. The retail chain posted a 133.5 billion won operating loss in the 2021 fiscal year between March 2021 and February 2022. The revenue was 6.5 trillion won in the same period, down 6.9% from the previous fiscal year.      

The retail chain’s financial health hasn’t improved much despite selling off around 20 stores across Korea since 2015. Homeplus’ debt ratio reached 696.8% as of end-May.   

Other retail giants are also threatened by lowered credit ratings.

Moody’s downgraded the credit profile of E-Mart, a supermarket chain of Shinsegae Group, from “Ba1” to “Ba2” on Aug. 22 as the big-box store chain sees its financial condition deteriorate, posting a 12.3 billion won operating loss in the second quarter. 

Moody’s also lowered the rating of Lotte Shopping Co., the parent company of big-box store chain Lotte Mart, from “AA” with a negative outlook to “AA-“ with a stable outlook in February.

Market analysts have adjusted E-Mart stock’s target price, considering the recent credit ratings.

Korea Investment & Securities Co. has dropped the target from 175,000 won to 155,000 won. Ebest Investment & Securities Co. and Kyobo Securities Co. revised the price from 170,000 won to 145,000 won.

Daishin Securities Co. adjusted it from 170,000 won to 150,000 won, and Yuanta Securities Co. lowered it from 190,000 won to 170,000 won.

The large supermarket chains are struggling to improve their business as the Yoon administration will maintain current regulations over retail giants’ operating hours for a while. Under laws set to protect smaller stores and traditional malls, large supermarkets must close by midnight and shut their doors twice a month.

President Yoon was poised to ease regulations on large supermarkets’ operating hours but has decided to keep the current regulations due to a strong backlash from smaller retailers.

Given their restructuring plans and intensifying competition with e-commerce, the big box store giants will continue to see their sales drop for the foreseeable future, said Korea Ratings’ senior research analyst Choi Han-seung.

Write to Hyun-Ju Jang at blacksea@hankyung.com
Jihyun Kim edited this article.