Meritz Financial Group is facing a complex situation regarding the recovery of funds after extending a loan exceeding 1 trillion KRW to Homeplus, which has entered corporate rehabilitation proceedings (court receivership).
Meritz executed a senior loan of 1.3 trillion KRW, backed by 62 Homeplus stores as collateral, with the outstanding loan balance currently standing at approximately 1.2 trillion KRW.
Although Meritz maintains that there is no issue in recovering the funds given the collateral value is estimated at 5 trillion KRW, the prevailing analysis suggests that aggressively exercising collateral rights may not be feasible, considering the heightened scrutiny from financial regulators and political circles.
According to the financial investment industry on the 16th, Meritz has been maintaining a cautious stance, refraining from additional statements following Homeplus’s court receivership application.
Meanwhile, given that Meritz’s cooperation is essential in the process of drafting Homeplus’s court-submitted rehabilitation plan, there is speculation regarding potential adjustments, such as loan repayment deferments or interest rate reductions.
An industry insider stated, “It is practically difficult for Homeplus to pay high-interest rates to Meritz while pursuing normalization,” adding, “Considering public sentiment, Meritz is likely to make some concessions.”
Furthermore, the disposal of Homeplus stores could significantly impact approximately 20,000 employees and partner companies, making it difficult to enforce collateral rights in practice.
With the National Assembly preparing inquiries on the issue and financial regulators initiating investigations, Meritz is facing increasing pressure, making it challenging to take a hardline approach.
The securities industry views this situation as an opportunity to reassess Meritz’s investment strategy.
A securities industry official noted, “Homeplus has long suffered from financial difficulties, and the retail industry’s conditions have deteriorated. While other financial institutions were hesitant to extend loans due to risk concerns, Meritz proceeded with funding, leveraging high interest rates and collateral. However, some argue that Meritz may have overlooked fundamental risk factors.”
This issue is expected to have some impact on Meritz’s future earnings. According to Kiwoom Securities, Meritz’s interest income could decrease by approximately 100 billion KRW due to the Homeplus situation, and if the loan is classified as substandard or lower, the burden of setting aside loan-loss provisions may also increase.
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Meritz Faces Dilemma Over 1 Trillion KRW Loan Recovery Amid Homeplus Court Receivership
Meritz Financial Group is facing a complex situation regarding the recovery of funds after extending a loan exceeding 1 trillion KRW to Homeplus, which has ent
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