Faltering Yongsan project finds breakthrough

The controversial Yongsan development project, which had been on the verge of bankruptcy, found a breakthrough on Thursday as two major shareholders reached an agreement ending confrontation on the project normalization plan.

On Thursday, Lotte Tour Development, the second-largest shareholder of Dream Hub, announced that it accepted the normalization plan, offered by the state-run KORAIL, the largest shareholder in the project, in the hope of saving the nation’s largest property development project, worth 31 trillion won ($29 billion). The board of Dream Hub, which held a meeting in the afternoon, approved the plan.

KORAIL, which holds a 25 percent stake in Dream Hub, offered a “conditional” capital increase plan on Tuesday to save the massive development project to transform 560,000 square meters into an international district in Yongsan, central Seoul, by 2016.

The project faced collapse as the developer’s capital, which once reached 1 trillion won, dried up in the latter part of last year. Since then, the two major shareholders have clashed over ways to raise additional funds.

According to the capital increase plan of KORAIL, the state-run company would inject another 2.6 trillion won into the project if other private shareholders, including Lotte Tour, raise the 1.4 trillion won required to construct the landmark building.

If Dream Hub secures 4 trillion won more as planned, industry watchers said the company would be able to proceed with the construction of the 150-story Dream Tower, a landmark multipurpose commercial building.

Aside from the capital increase plan, KORAIL also asked Lotte Tour to transfer its 45.1 percent stake in Yongsan Development Co., the builder of the project, to the company, which had been another sticking point. The issue was ironed out as Lotte Tour accepted KORAIL’s request. KORAIL has claimed that a construction firm bigger than Lotte Tour was needed to lead the gigantic construction project.

Despite the agreed business normalization plan, it remained to be seen whether or not the Yongsan project would ride out the conflict as the recovery of the real estate market would be another critical factor for the success of the project, industry watchers said.

By Seo Jee-yeon  (jyseo@heraldcorp.com)