LH decision is right

The Korea Land & Housing Corp. declared it will abandon a commuter town development project it had pursued in a joint venture with Seongnam City after the satellite municipality said it cannot repay the outstanding debt it owes to the state-run group.

Residents fear they will be victimized if the Pangyo New Town project collapses due to the debt dispute between the city and the state developer. They criticized the Land & Housing Corp. for opportunism after it jumped onto the project 10 years ago only to suddenly withdraw from it after the city sought the debt moratorium.

The Land & Housing Corp. cited low profitability for its decision to pull out as construction costs have shot up to 13 million won ($10,995) per 3.3 square meters, higher than the 12 million won average for the area, because of excessive demands from landowners and residents.

The Land & Housing Corp. has grounds for exercising caution. It sits on a mountain of debt, having to finance mega-sized state projects like rental apartments for low income families, the construction of Sejong City and other state-subsidized property projects.

Its debt, which totaled 20 trillion won in 2003, has snowballed to 118 trillion won at the end of last year. With a debt-to-equity ratio exceeding 500 percent, it is paying more than 10 billion won in interest every day. Its debt is expected to reach 176 trillion won by 2012.

Under present circumstances, no one would buy its corporate bonds and the company appears to be on the road to bankruptcy. The company inevitably would have to prioritize and abandon unprofitable business projects. Its hope for raising funds by selling some of its property assets is not going well because of the sluggish real estate market.

The company cannot exit from its debt on its own. The rental apartment business alone has led to debts of 27 trillion won, with operating losses of 600 billion won a year.

The government should revise regulations on the state property developer to ease its liquidity crisis.

The state agency cannot be blamed for revising its investment in Seongnam City and other New Town development projects. A sensible company must re-examine profitability and the feasibility of its business plans.

Seongnam City residents must try to resolve the problem through negotiations instead of protesting. A state agency is entitled to place profitability as a top business priority.