Collapse of Yongsan development nails builders

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Collapse of Yongsan development nails builders

The decision of Korea Railroad Corporation (Korail) to liquidate the 31 trillion won ($27 billion) Yongsan International Business District development plan is a huge blow to local construction companies which stand to lose 200 billion won worth of investments in the project.

Korail, the state-run railway operator and largest shareholder of the project, decided to scrap the nation’s largest-ever property development initiative on Monday after its normalization plan failed to get support from private investors.

The project will officially come to an end when Korail returns 2.4 trillion won to the Dream Hub Financing Vehicle, a special purpose company created for the project, and reclaims land sold to Dream Hub. Seventeen builders who invested in Dream Hub will not get their money back, aggravating concerns about the struggling construction sector.

Samsung C&T, the nation’s second-largest construction firm, stands to lose the most, after investing 64 billion won.

The fourth-largest builder, GS Engineering & Construction, will be out 20 billion won, as will Hyundai Development Company and Kumho Industrial. Major builders such as Posco E&C, Lotte E&C and SK E&C put up 12 billion won each.

Other construction firms that will not get their money back are Doosan E&C, Samsung Everland, Hanyang, Taeyoung E&C, Namkwang E&C, Bando Construction, Samhwan, Kyeryong Construction and Eugene.

In addition, companies like Samsung C&T, GS E&C, Lotte E&C, SK E&C and Samsung Engineering, which joined a consortium to carry out a soil contamination remediation project on Yongsan properties, are also not likely to receive a total of 290.5 billion won in payments.

The stock values of construction companies tumbled yesterday, including GS E&C, which lost nearly 2 percent to close at 48,850 won. Samsung C&T barely moved, adding only 0.15 percent to close at 67,000 won.

Some builders already showed their intention to file a claim for damages against Korail, saying the railroad operator is responsible for the death of the project.

Meanwhile, in a final move to revive the project, Dream Hub yesterday asked the PF business arbitration committee under the Ministry of Land, Infrastructure and Transport to make Korail accept its normalization plan.

If the committee decides to review the request and Korail later agrees to nonbinding arbitration, it is possible the project could get new life. But since the government has been keeping its distance and Korail’s stance is firm, industry insiders say chances of that happening are slim.

By Joo Kyung-don [kjoo@joongang.co.kr]

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