State-run rail operator KORAIL has decided to inject 6.4 billion won ($5.9 million) of emergency funds into the faltering massive project to develop Yongsan in a desperate effort to avoid bankruptcy.
KORAIL officials said Friday that the financial support will be made in the form of an advance payment guarantee on part of the 25.7 billion won compensation the project developer Dream Hub is supposed to receive from the Korea Post.
Dream Hub, led by KORAIL and Lotte Tour, had faced bankruptcy as its funding, which started at 1 trillion won as dwindled to less than 900 million won. The consortium is composed of 29 corporations, which had been in conflict over how to finance the 31-trillion-won project.
KORAIL’s support means that the developer will be able to meet the March 12 deadline to pay 5.9 billion won in interest on the asset-backed commercial paper it issued.
The measure is seen as a last resort to normalize the project in a situation where all private stakeholders, most of whom are builders, asset managers and equity funds, are reluctant to make additional investments.
But market watchers said the support was nothing but a stop-gap measure to normalize the ailing Yongsan project given that huge funds need to be raised to proceed with the massive development project in the heart of Seoul.
Furthermore, KORAIL made it clear that it would demand Samsung C&T give up its right to construct the 150-story landmark tower building, the centerpiece of the Yongsan project to build high-rise commercial buildings, luxury hotels and a shopping complex.
Industry sources said the rail operator appears to be seeking other major builders to draw their investment to resuscitate the nation’s largest-ever urban development plan.
But Samsung C&T, one of the stakeholders in Dream Hub, is opposed to KORAIL’s move, claiming that it won the license through an official bidding process.
The builder reportedly said it was perplexed by KORAIL’s move to retrieve the license for the reason that it cannot make an additional investment. “It lacks legal grounds,” a Samsung official was quoted as saying.
KORAIL’s decision came a day after its CEO Chung Chang-young met Lotte Tour chairman Kim Ki-byung to discuss plans to normalize the project. Lotte Tour is the second-largest stakeholder in Dream Hub.
In the meeting, the first of its kind between the two sides, chairman Kim expressed his full support for KORAIL’s normalization plan, according to news reports.
By Bae Hyun-jung (
tellme@heraldcorp.com)
