The National Pension Service (NPS), South Korea's state pension fund, is leaning toward writing off the entire value of its redeemable convertible preferred shares (RCPS) in Homeplus, invested when the retailer was acquired in 2015.
Investment banking sources said Thursday that the NPS is reviewing a plan to recognize a full loss on its RCPS holdings in Homeplus.
When private equity firm MBK Partners acquired Homeplus in 2015, the NPS invested a total of 612.1 billion won ($449 million), comprising 582.6 billion won in RCPS and 29.5 billion won in common shares. The NPS said it has recovered 313.1 billion won to date through refinancing and dividend payments.
The NPS was guaranteed a five-year maturity with a 3% dividend and a yield-to-maturity (YTM) of 9% on a compound annual basis when it invested in the RCPS, sources said. The RCPS also included a step-up clause that raises the interest rate over time.
Excluding dividends and the step-up clause, a simple calculation based on nine years of compound interest puts the amount owed to the NPS at approximately 1.26 trillion won. Even after subtracting the 313.1 billion won already recovered, the NPS would still be owed roughly 950 billion won.
The NPS's decision to review a full write-off comes as the sale process for Homeplus Express, the retailer's superstore (SSM) division, gains momentum. Industry observers say the move reflects a conservative accounting approach, with the NPS assigning a low probability of recovery amid uncertainty over whether the company's rehabilitation will succeed or fail.
Market participants say the NPS's loss recognition is unlikely to significantly affect Homeplus's rehabilitation plan. They note it is an internal accounting matter for the NPS rather than an actual valuation issue. "Because this is a matter of internal accounting assessment, rehabilitation can succeed even if a loss is recognized, and it can fail even if the value is assessed highly," an investment banking source said.
Multiple bidders, including MGC Global — the operator of Mega Coffee — submitted bids in the preliminary auction conducted by sale advisor Samil PricewaterhouseCoopers through the end of last month. MGC Global's entry, backed by strong financial resources, has provided a foothold toward rehabilitation.
Earlier this year, Homeplus secured 100 billion won in emergency funding from its largest shareholder MBK Partners amid a payroll crisis. Observers say that if additional cash can be raised through the asset sale on top of that, it would establish a minimum foundation for crafting a rehabilitation plan.
However, several hurdles remain before an actual sale and court approval of a rehabilitation plan. Technical challenges such as workforce reallocation between the headquarters and the SSM division could become obstacles during negotiations. Even if a sale is completed, a difficult path to court approval of the rehabilitation plan is expected.