Honestbee’s Ongoing Cash Crunch, Explained

Honestbee currently owes around US$230 million, and ex-chairman Brian Koo and his companies own almost 90% of the debt

Singapore-based grocery delivery startup Honestbee has been on a downward spiral since early 2019. Starting with layoffs and a ‘pause’ on business in the Philippines, it soon became clear that Honestbee was battling a major cash crunch. In April, the company announced the suspension of all its overseas operations. In May, the startup stopped its food delivery service in Singapore.

By August 2019, Honestbee owed US$180 million to creditors, and filed an application in the Singapore High Court to seek protection from creditors for six months in order to start a debt restructuring process.

An Honestbee spokesperson said at that time that 38 employees had been laid off in Singapore and no further cuts would be made. However, on March 9, Honestbee laid off 80% of its staff in Singapore.

Following the Singapore job cuts, an Honestbee spokesperson told DealStreetAsia, “Due to several external commercial pressures that have resulted in the protracted closure of Habitat by Honestbee, the company has made the strategic decision to reduce its staff force. As a result, the company has decided to reduce its non-core staff as it does not foresee operating Habitat in its full strength over the next few weeks.”

The decision was likely due in part to a cash crunch caused by the COVID-19 outbreak, which has resulted in lockdowns in several countries and reduced footfall in brick-and-mortar stores.

In October 2019, Honestbee was granted a four month debt moratorium by the Singapore High Court–two months short of the six months Honestbee had appealed for.

In January 2020 Honestbee entered into an agreement with multiple existing investors to receive a capital infusion of $7 million from FLK Holdings, Formation Group Fund I, and Formation Group (Cayman) Fund I. Honestbee’s former Chairman and interim Chief Executive Officer (CEO) Brian Koo, whose family controls South Korean electronics titan LG, is linked to all three funds. Koo’s companies hold 90% of Honestbee’s debt, in addition to being investors.

The US$7 million infusion would have allowed Honestbee to fully repay all creditors with loans of S$500 or less. Around 800 other creditors would have received 3% of their claims in cash, with the remaining 97% of their claims fulfilled through shares in a new company set up to continue Honestbee’s business.

On March 18, 2020 Honestbee sent an email to creditors saying it has sold furniture and equipments worth over $77,000 to its management and employees, and perishable goods worth more than $9000 to raise working capital.

According to a press statement on March 24, Honestbee said that it is taking legal action against former CEO Joel Sng and former Director Jeffery Wong based on recently-discovered irregularities in transactions during their employment. Wong has denied all allegations.

However, on March 25, Honestbee told its creditors that FLK Holdings and Formation are reconsidering their support of the company due to the escalating COVID-19 pandemic situation.

Finally, on March 26, the Singapore High Court rejected the firm’s plea for protection against enforcement actions and legal proceedings from creditors. Honestbee is now exposed to creditor claims–including those of Koo and the companies associated with him.

“Following the court’s dismissal on the company’s application for a scheme of arrangement, Honestbee is currently considering next steps,” CEO Ong Lay Ann told Jumpstart in an email statement.

Without the support of Koo’s companies, Honestbee will have to look elsewhere for bailout investment. And if Honestbee is unable to find an investor, it could be facing bankruptcy.

In December 2018, Honestbee earned around $2.5 million and made a loss of $6.5 million. As of mid 2019, Honestbee had about $14 million worth of property, plant and equipment, and about $650,000 in cash (investment from Koo). Assuming that the company continues to lose money, in the case of liquidation, unsecured creditors may not be able to recover more than 90% of their claims.

All figures in U.S. Dollars unless stated otherwise.

Header image courtesy of Honestbee.

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