Yongsan project in limbo

Korail, Lotte Tour clash over control of Korea’s largest property project

By Lee Hyo-sik

Korea’s largest single property development scheme valued at $27 billion faces an increasingly uncertain future because two of its largest stakeholders are engaged in a nasty war for managerial control of the project.

The “Yongsan International Business Zone’’ is scheduled to begin early next year and is to be completed by 2016. But the outlook is becoming increasingly murkier, with Korail, the state-run rail operator that owns the land near Yongsan station in downtown Seoul, clashing with Lotte Tour, the largest shareholder in Yongsan developers’ consortium, over a wide range of issues concerning the project.

According to Korail, Lotte Tour and other industry sources, Tuesday, “Dream Hub,’’ a special purpose company set up to undertake the $27 billion scheme, held a board of directors’ meeting a day earlier to discuss a proposal submitted by Korail enabling the railroad operator to take over stakes once held by Samsung Construction and Trading (C&T). But directors decided to deal with the matter at a later date, due to protest from some stakeholders.

Korail has a 25-percent stake in Dream Hub, with Lotte holding 15.1 percent. The remaining shares are held by construction firms and financial investors.

Dream Hub operates an asset management company (AMC), which actually undertakes the Yongsan project. The AMC is 70.1 percent-owned by Lotte, with Korail holding the remaining 29.9 percent.

Lotte used to hold a 25-percent stake but after Samsung C&T withdrew from the development scheme, the tourism and real estate developer took over Samsung’s 45.1 percent share.

But Korail has been seeking to acquire Lotte’s 45.1 percent stake in order to secure managerial control of the part-stalled project.

``Lotte has done nothing to move the project forward. It is just wasting time and money. We cannot just sit and do nothing. So, we need to get management control of the AMC back to normalize the scheme,’’ said a Korail spokesman who refused to be named.

But Lotte has been refusing to hand Samsung’s stake over to the railway operator, saying it will relinquish it to a lead builder that will carry out the construction.

``Our position is to give the 45.1 percent stake in the AMC to a new leading construction firm that will undertake the project. Besides, Korail cannot own more than a 29.9 percent stake in the AMC in accordance with the contract signed by stakeholders,’’ said Lee Joo-byung, a spokesman for Lotte Tour.

Dispute over `everything’

The two entities are also fighting over how to finance the Yongsan project.

Korail wants to raise the capital of Dream Hub up to 3 trillion won from the current 1.4 trillion by attracting investments from current stakeholders and others interested in taking part in the scheme. However, Lotte Tour opposes such plan, saying increasing Dream Hub’s capital is not an urgent matter to be tackled at this time.

Shareholders recently held a meeting to vote on the matter. But Korail’s proposal was voted down as a result of opposition from Lotte and other shareholders.

“Korail has been arguing that we are solely responsible for its failed attempt to raise the capital. But many other shareholders also opposed it,’’ Lee of Lotte Tour said.

However, Korail has argued that Dream Hub’s capital should be raised so that it can more effectively undertake the 31 trillion won project.

“Lotte Tour didn’t like our plan because it does not want to see its stockholding decline from the current 15.1 percent. This shows Lotte is not interested in pushing the scheme forward. It only cares about its own interests,’’ the Korail spokesman said.

The two have also failed to narrow their differences over how to proceed with the Yongsan project.

Korail wants to forward the project site by site, given the shortage of funds. But Lotte seeks to carry it out involving all planned areas, arguing the railroad operator wants to develop the land it owns, disregarding other areas including nearby apartment complexes.

The Yongsan international business hub had been touted as the heart of Seoul’s new urban landscape, built around a massive, 150-story skyscraper and a wealth of riverfront business and tourist venues, including a state-of-the-art dock for cruises.

When completed, the Yongsan business hub is intended to attract 140 million people every year, create up to 360,000 new jobs and generate 67 trillion won in production value, according to past news releases.