KORAIL to take over Yongsan project
By Na Jeong-ju
KORAIL will take over the management of a special purpose company responsible for the construction of an international business district in Yongsan, Seoul, from Lotte Tour, the firms announced Thursday.
KORAIL and Lotte, the two biggest shareholders of asset management company Dream Hub PFV, have been feuding over how to finance the project, valued at 31 trillion won ($28.7 billion). Dream Hub is on the brink of bankruptcy due to capital erosion.
“Lotte has agreed on a deal to give up management in an effort to bring the Yongsan project back on track,” Lotte Tour Chairman Kim Ki-byung said in a press release.
The deal raises hopes for a turnaround to the stalled development project, but many hurdles still lie ahead for shareholders.
KORAIL, Lotte and 28 other private investors raised some 1 trillion won in 2007, but now have only 500 million won. Without a capital increase, Dream Hub will go bankrupt.
KORAIL, the state-run rail corporation, said it will raise additional capital of some 4 trillion won from current shareholders as well as other firms that have showed interest in taking part in the project. But private investors have been reluctant to inject fresh capital amid an uncertain outlook for the housing market.
KORAIL’s takeover of the project means that, in the worst case scenario, taxpayers’ money could be used. Analysts say the asset management firm going bankrupt will have grave consequences for the companies involved, the property markets in and around the development zone as well as the national economy.
KORAIL wants Samsung C&T, one of the stakeholders, to provide 1.4 trillion won through a debt-for-equity swap. Samsung is in charge of building Dream Tower, a 665-meter-tall, 150-story landmark building to be located at the center of the business district.
If Samsung accepts the offer, KORAIL says it will also provide 2.6 trillion won. Then, KORAIL’s stake in Dream Hub will rise to 57 percent from the current 25 percent, while Samsung’s stake will surge to 29.2 percent from 6.4 percent.
The builder, however, has opposed the idea, saying the financial burden should be shared equally by all investors. Samsung C&T used to be the largest shareholder with a 45.1 percent stake in Dream Hub, set up to secure funding for the Yongsan project, but sold the stake to Lotte amid conflict with KORAIL.
“The bottom line is that all investors should share the responsibility. KORAIL’s proposal is not acceptable. It needs to persuade other private investors who are just trying to avoid taking risks first,” a Samsung C&T spokesman said, asking not to be named.
Despite Samsung’s lukewarm attitude, KORAIL is determined to push its capital increase plan through, saying it is the only option left to keep the project afloat. It submitted the plan to the board of Dream Hub later on Thursday to seek its approval.