NICE Credit Rating reported on the 6th that Lotte E&C faces higher financial burden than DL E&C from Homeplus's rehabilitation termination. Seoul Rehabilitation Court ended Homeplus's procedure on the 3rd after the retailer failed to secure 200 billion won in DIP financing. The termination creates project financing risk for construction firms exposed to Homeplus store developments.
Lotte E&C Faces Up to 555.4 Billion Won Fund Outflow Risk
Lotte E&C provided joint guarantees of approximately 573.8 billion won for subordinated loans in three Homeplus-related funds as of end of June this year, according to NICE Credit Rating's report on the 6th. Homeplus's final liquidation qualifies as grounds for senior lenders to declare Event of Default (EOD).
Kim Chang-soo, researcher at NICE Credit Rating, stated that Lotte E&C will need to support senior loan interest payments to prevent EOD occurrence. NICE estimates Lotte E&C's maximum annual interest burden at approximately 50 billion won if Homeplus undergoes final liquidation. The company already bears approximately 23.5 billion won annually in senior loan interest funding following the closure of four stores in May—Gimhae, Gajwa, Centum City, and Dong-Suwon.
If EOD is declared, 20 percent of Homeplus-related PF contingent liabilities in the Charlotte Fund—approximately 111.1 billion won—must be repaid within 30 days. The remaining 80 percent, approximately 444.3 billion won, becomes due at the Charlotte Fund's maturity in March 2027. Total fund outflows could reach 555.4 billion won under EOD declaration.
Lotte E&C held 861.5 billion won in cash assets and 523 billion won in credit lines as of end of March this year. The company can utilize approximately 319.1 billion won in time deposits provided as collateral for the Charlotte Fund upon maturity. However, with net borrowings reaching 2.2 trillion won, a short-term outflow of 550 billion won creates additional financial pressure, according to NICE's assessment.
DL E&C Maintains Strong Cash Position with 2.2 Trillion Won Assets
DL E&C faces relatively limited financial burden compared to Lotte E&C, according to NICE Credit Rating's evaluation. DL E&C, together with Daelim, holds five Homeplus stores—Ulsan Namgu, Uijeongbu, Daejeon Munhwa, Incheon Inha, and Jeonju Wansan—through four project finance vehicles (PFVs).
Total PFV borrowings amount to 535.3 billion won, comprising 392.8 billion won in senior loans and 142.5 billion won in subordinated loans. DL E&C and Daelim provided funding supplementation agreements for the 142.5 billion won subordinated loans.
Three of the five stores—Ulsan Namgu, Daejeon Munhwa, and Jeonju Wansan—have closed. Ulsan Namgu store signed a sale contract for 147 billion won on the 30th of last month, with proceeds designated to repay approximately 130 billion won in senior loans. Daejeon Munhwa and Jeonju Wansan stores are pursuing HUG public-supported private rental housing projects.
Kim stated that interest burden could increase if the currently operating Uijeongbu and Incheon Inha stores cease operations due to Homeplus liquidation. However, DL E&C held 2.2 trillion won in cash assets and 5.3 trillion won in total equity as of end of March this year. The company maintains net debt of negative 1.1662 trillion won, effectively in net cash position.
Kim added that even if senior loan EOD or subordinated loan subrogation materializes, the impact on DL E&C's financial stability will be limited.
Seoul Court Terminates Homeplus Rehabilitation on the 3rd
Seoul Rehabilitation Court terminated Homeplus's corporate rehabilitation procedure on the 3rd. Homeplus filed for corporate rehabilitation in March last year and pursued submission of a rehabilitation plan and sale of its Homeplus Express business division, but mergers and acquisitions for remaining business units did not materialize.
Sales declined while public claims including wages and product payments increased during continued operations. The company required approximately 200 billion won in DIP financing to sustain operations, but funding was not secured. The court determined that executing a rehabilitation plan was not feasible.
Homeplus can secure funding and file an immediate appeal within 14 days. If the court accepts the appeal, the rehabilitation procedure could resume.
NICE Credit Rating stated it will monitor senior loan EOD declarations, refinancing progress, expanded interest burden, and financial pressure from subordinated loan subrogation realization, reflecting these factors in credit assessments.
FAQ
What did NICE Credit Rating report on the 6th regarding Lotte E&C and DL E&C?
NICE Credit Rating reported on the 6th that Lotte E&C and DL E&C have high exposure to Homeplus store development projects, with Lotte E&C facing relatively higher financial burden expansion due to its 573.8 billion won in joint guarantees for subordinated loans in three Homeplus-related funds as of end of June this year.
Why did Seoul Rehabilitation Court terminate Homeplus's corporate rehabilitation procedure?
Seoul Rehabilitation Court terminated Homeplus's procedure on the 3rd because the company failed to secure approximately 200 billion won in DIP financing needed to continue operations, and the court determined that executing a rehabilitation plan was not feasible after mergers and acquisitions for remaining business units did not materialize.
How does DL E&C's financial position differ from Lotte E&C's regarding Homeplus exposure?
DL E&C held 2.2 trillion won in cash assets and maintained net debt of negative 1.1662 trillion won as of end of March this year, effectively in net cash position, while Lotte E&C faces up to 555.4 billion won in potential fund outflows if Event of Default is declared on Homeplus-related senior loans.
