Yongsan skyscraper project in jeopardy

The country’s ambitions plan to build an enormous riverfront facade, highlighted by a 620-meter high, 111-floor tower and two dozen other “super-high” buildings circling it in Yongsan, downtown Seoul, as portrayed in this artist’s depiction, is in jeopardy. / Korea Times

By Park Si-soo

An ambitious skyscraper plan for Seoul’s Yonsan district, aimed at giving the Korean capital a Hong Kong-inspired facelift, appears to be on verge of being derailed.

The major shareholders of the 31 trillion won ($28.85 billion) project seem ready to bail from the country’s most expensive property scheme ever as they grapple with an acute shortage of funds amid the bad economy and a toxic real estate market.

Developers now have less than 10 billion won in their coffers, which could run out by mid-January. Without a massive capital injection, bankruptcy would be unavoidable, according to officials close to the project.

The companies involved are calling on the government to step in with a solution. However, it remains to be seen whether the new Park Geun-hye administration will be willing to commit to such a biblical mess at a time of fiscal pressure.

Dream Hub, the special purpose company set up to push the Yongsan project forward, said it isn’t waving the white flag yet. However, one has to wonder whether it’s just delaying the inevitable.

The company attempted to raise some 250 billion won earlier this month by issuing convertible bonds but failed because none of the 30 shareholders of the project, including the largest, Lotte Tour, and No. 2, Korail, were willing to open their wallets.

“We will have to pay interest of 4.7 billion won by Jan. 17 or otherwise go bankrupt,” a Dream Hub official said. “We are trying to raise 100 billion won with contributions from shareholders. But this is not enough to put the project fully back on track so we are developing various ways to attract investment.”

The government approved the Yongsan International Business Zone project in August 2006. Under the plan, some 60 buildings, including a 111-story landmark building, a wealth of riverfront business and tourist venues, a shopping mall, department stores and apartments, were to be built by 2016 on 566,800 square meters, part of which was previously used for railroad operator Korail’s facility maintenance center.

The project faced problems from the start. The first conflict between the two largest shareholders surfaced in 2007 after Korail and the Seoul City government agreed to build the business zone on a bigger block of land without Lotte’s consent. The clash was focused on how to secure additional funding to ensure smooth progress.

Yet the discord reached a new level in September this year as the two started engaging in a nasty war for managerial control of the project.

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 for the Yongsan project. It 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 that 45.1 percent stake from Lotte in order to secure managerial control of the partly-stalled project.

Korail wants to streamline the decision making process and facilitate the progress of all affairs related to construction, while Lotte has refused to relinquish the stake.

The two parties are also at odds over how to finance the project.

Korail wants to raise the capital of Dream Hub up to 3 trillion won from the current 1.4 trillion by attracting investment from current stakeholders and others interested in taking part in the project. Lotte opposes this saying increasing Dream Hub’s capital is not an urgent issue.

They have also failed to narrow their differences over how to proceed.

Korail wants to move forward site by site, given the shortage of funds. But Lotte is seeking to carry out working on all planned areas, arguing the railroad operator wants to develop the land it owns, disregarding other sites including nearby apartment complexes.