By Kim Tae-jong
Staff Reporter
Kangho AMC, a Korean real estate developer, recently signed a preliminary contract to buy Millennium Seoul Hilton in Seoul for $458 million (460 billion won) from U.K.-based Millennium & Copthorne Hotels.
The deal, however, has raised questions about how the relatively unknown loss-ridden company could afford to take over such a heavyweight five-star hotel.
According to a public notice filed to the financial regulator, Kangho specializes in trading and developing real estate. It is 100 percent owned by Kim Woo-nam and his shareholders. Kangho, with capital of 200 million won, recorded 15.4 billion won in net losses on sales of 174 million won in 2007. Its current debt stands at 241 billion won.
Kangho officials say they will have no problem raising funds to take over the hotel. They say they will borrow funds from financial firms, attract investments and use part of their earnings generated from real estate development projects.
Kangho plans to sign a final contract to buy Millennium Seoul Hilton in September. But many officials from the hotel industry are doubtful about the company's fundraising capability. Kangho also plans to buy real estate around the hotel to develop it into a leisure complex, including a large-scale convention center. It says it will borrow funds after providing its properties as collateral.
The trade union of Millennium Seoul Hilton is also uneasy about the future of the hotel.
``It was all so sudden,'' said Park Kyong-hee, head of the labor union. ``It would have been different if it were major conglomerates. We certainly have some suspicions. We have so little information about our new owner.''
Union members held a rally in front of the hotel last week, denouncing the sudden sell-off and calling for talks with the new owner.
In 1999, Daewoo Development, an affiliate of the now-defunct Daewoo Group, sold the hotel for $229 million to City Development Ltd (CDL) which holds a 53 percent stake in Millennium & Copthorne Hotels.
Kangho has appointed vice-president of CDL Korea, Jang Ki-taek, as the new president of the hotel.
``We have long sought to take over a hotel. We want to expand our businesses further, using the hotel as leverage,'' an official of Kangho AMC said. ``Contrary to what has been reported, our company has assets big enough to own the hotel.''
The company said it would borrow part of the necessary funds from Kookmin Bank, but fell short of disclosing details about fund-raising.
Kangho officials denied allegations that former Daewoo Group Chairman Kim Woo-choong, 72, is behind the deal and part of a slush fund he raised has some connection with the acquisition.
It is speculated that some money came from the disgraced chairman as the news about the contract came out shortly after Kim was ordered to leave a penthouse at the hotel, which he leased for 25 years for just 328 won (31 cents) per day.
Kangho's plan to buy 6,500 pyeong (1 pyeong equals 3.3 square meters) of real estate surrounding the Hilton to build a leisure complex also faces some rough sailing. That's because part of the land is in the process of being confiscated by the government as it is seen as assets hidden by former Daewoo chairman Kim.