By Na Jeong-ju
The country’s largest-ever development project has collapsed, and will be liquidated.
The state rail firm KORAIL, the largest stakeholder with 25 percent, said Monday it has decided to pull out of the project.
The decision, made unanimously at a company board meeting, came after it failed to narrow its differences with private investors, led by Samsung Group’s construction arm Samsung C&T, over how to finance the scheme, previously valued at $28.7 billion.
After the project was launched in 2007 to a big fanfare, KORAIL received about 2.4 trillion won ($209 million) from other investors in return for providing its land in Yongsan, central Seoul, where they sought to build an upscale business district.
The firm said it will return the money, and reclaim ownership over the land.
“The money will be fully paid back by September,” a company spokesman said.
On March 14, Dream Hub, a special purpose company the shareholders jointly set up in 2007 to implement the project, failed to pay interest of some 5.9 billion won on bonds it issued, raising concerns about possible bankruptcy. Dream Hub raised capital of 1 trillion won ($907 million), but it has eroded completely.
To keep the project afloat, KORAIL offered a deal to Samsung C&T to raise fresh funds. However, that was rejected by other shareholders, who claimed they couldn’t afford to spend more money, citing the prolonged economic slump and the uncertain outlook for the housing market.
Including some operating costs each firm has since spent, the net loss from the project may total some 1.5 trillion won, industry sources said, adding a string of lawsuits between shareholders is inevitable.
Damage for residents could be even greater.
Home and land prices around Yongsan Station have almost doubled since 2007. If the bubble bursts, the impact will be huge not only on the property markets, but also on people’s lives.
KORAIL may suffer capital erosion because it is already heavily indebted. In that case, the government will have to spend taxpayers’ money to rescue the state firm. As of the end of 2011, KORAIL’s capital was 8.7 trillion won. However, it had already issued bonds worth 8 trillion won and has some 11 trillion won in debts.
All other investors have lost their money. They include Lotte Tour, which invested some 150 billion won; the National Pension Service (NPS), with 125 billion won; KB Asset Management, 100 billion won; Prudential Real Estate Investment, 77 billion won; Mirae Asset Financial Group, 49 billion won; Samsung Life Insurance, 30 billion won; and Woori Bank, 20 billion won.
Builders which participated in the project have also suffered damage. Samsung C&T lost 64 billion won, while GS Engineering & Construction, Hyundai Development and Kumho Industrial also lost some 20 billion won apiece.