Korail votes to put a stop to Yongsan development

The 31 trillion won ($27 billion) Yongsan property development project, the largest-ever in Korean history, is officially dead in the water after a seven-year struggle.

According to Korail, the largest stakeholder of the Yongsan International Business District development project yesterday, the company’s board of directors voted to revoke the project and land contracts.

All 13 members of the board agreed to put an end to it. “Korail tried to normalize the project in order to minimize the social and economic loss for society, but private investors including Lotte Tour Development and Samsung C&T were opposed to our proposal,” the company said in a statement.

The state-run railway operator will now have to pay 2.4 trillion won to project executor Dream Hub Financial Investment, which it had earned from selling the land to the financial investment company. On March 14, Dream Hub defaulted on 5.2 billion won worth of interest on the 200 billion won asset-backed commercial paper.

Korail will pay 540 billion won of the money today - the remainder will be paid back in June and September.

How the debt-ridden Korail will come up with the money remains to be seen. Market watchers say the company will have to borrow the money from banks or issue corporate bonds.

Korail hasn’t posted a surplus in its railway business for the last eight years after it was converted from a government agency to a public corporation in January 2005.

The railway unit has so far accumulated 1.3 trillion won in deficit, according to the Ministry of Land, Infrastructure and Transport.

Dream Hub will be officially notified of the cancellation of the land purchase by April 22. The whole project contract will become ineffective starting April 29.

The area in Yongsan containing train warehouses will be returned to Korail. The rest of the land will go back in the hands of residents of Seobuichon-dong, central Seoul.

The residents held a press conference yesterday, saying that they will demand at least 220 billion won in compensation to make up for their losses for the past seven years.

The project, proposed in 2006, was deemed to be Korea’s largest property development project, turning the area into a large international complex of offices, malls, hotels and apartments.

By Song Su-hyun [ssh@joongang.co.kr]