By Lee Hyo-sik
Korail demanded Thursday that Samsung Construction and Trade (C&T), the leader of the consortium of builders for the Yongsan development project, voluntarily pull out of the stalled scheme if the company is unwilling to normalize it.
The state-run rail operator also said it will soon select a new lead builder to replace Samsung. But it said it has no intention to exercise its right to nullify the development contract with the construction arm of Korea’s largest business group.
“We have informed Samsung C&T that we want the builder to withdraw from the asset management company (AMC) in charge of implementing the development project. But we have not yet received any response from Samsung,” Korail said in a press release.
Samsung C&T owns a 45.1 percent stake in the AMC, a special purpose entity that was set up in 2007 solely for completing the “Yongsan International Business Zone” project, a 31- trillion-won ($27 billion) venture that was to represent the country’s largest single property scheme.
“Samsung C&T has been forcing the state-run Korail to make unnecessary sacrifices. The builder should stop holding the Yongsan project hostage and make the necessary decision to revive the stalled project,” it said, stressing Samsung has been refusing to take responsibility as the lead builder.
The construction firm has declined to make a payment for the land near the Yongsan railway station in Seoul over the past year, asking Korail to slash land prices in the wake of the prolonged real estate market slump.
In 2007, Samsung C&T and 16 other builders won the bid to develop Yongsan into an international business hub by 2016 by pledging to buy the land from Korail for 8 trillion won.
Citing difficulties in raising funds, the construction firm has also demanded other builders and financial investors to shoulder larger development-related costs. Against this backdrop, Korail has been pressuring Samsung to abide by the contract and make land-related payments as scheduled.
“We have reduced the amount of interest payments and deferred the land-related payments for months in a bid to have the Yongsan project proceed as planned. Yet Samsung C&T and other builders have refused to make payment guarantees for the land,” the press release said.
Korail’s spokesman, Kim Heung-seong, said unless Samsung takes full responsibility as the lead builder in the project, it should give up the development right once and for all. “We will put forward this agenda to the AMC’s board of directors’ meeting next Monday. If not approved, we will call for the convening of a special shareholders’ meeting and have our demand met.”
Kim then said several construction firms have expressed an interest in taking over Samsung C&T’s role, adding that other builders, financial investors and the Seoul Metropolitan Government should make every effort to put the Yongsan project back on track.
When Samsung C&T and 16 other builders committed to the project in 2007, the country’s real estate market was at its peak. The market has skidded sharply since then, and the companies are no longer certain that the returns will ever justify an 8 trillion won splurge.
The Yongsan investors need 2 trillion won to fulfill their land-related payments through the end of next year, and Korail demanded the construction firms come up with the money through real estate project-financing loans.
The builders balked at the demand, claiming they don’t have the room left to take on massive guaranteed loans and that financial investors should share the burden as well.
This had financial investors suggesting an alternate plan where the builderscome up with 950 billion won and the rest of the money would be raised througha capital increase and loans based on KORAIL-provided collateral.
The builders rejected this as well, with Samsung C&T claiming that the cost should be divided among each financial investor and construction company depending on the size of their stakes.
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