Road map to Samseong-dong

Hyundai Motor Group has secured a 79,345-square-meter (19.6-acre) site in southern Seoul’s high-end Gangnam District for the jaw-dropping price of 10.55 trillion won ($10.12 billion), but there is long road ahead before Chairman Chung Mong-koo achieves his dream of a global business center.

By paying the highest price ever for a single plot of land in Korea, the world’s fifth-largest automotive group has expressed its ambitious plan to utilize the Samseong-dong property owned by the Korea Electric Power Corporation (Kepco) for a new headquarters, automotive theme park, hotel, shopping center and exhibition hall.

But before starting construction, there are steps Hyundai must take.

In order to take ownership of the land, Hyundai needs to pay the bid amount to Kepco. The conglomerate is expected to sign a deal with the state-run electricity provider on Friday. While it will pay 10 percent of the bid price as a deposit, Hyundai can pay the balance in three four-month installments.

For the bidding, three group affiliates - Hyundai Motor, Kia Motors and Hyundai Mobis - formed a consortium. Hyundai Motor is responsible for 50 percent of the sale price, Kia Motors 30 percent and Hyundai Mobis 20 percent. According to the group, the value of Hyundai Motor’s cash, liquid assets and short-term financial instruments was nearly 18 trillion won as of June 30, while Kia had more than 5 trillion won and Hyundai Mobis 3.7 trillion won.

After the contract is signed, Hyundai also needs to negotiate with Kepco over an underground electricity substation. According to Kepco, the 3,924-square-meter substation was built in 1985 and provides electricity to Kepco headquarters and nearby residences. While Kepco reportedly wants the substation to remain, Hyundai wants to relocate it.

Hyundai will also need approval for the development from the Seoul Metropolitan Government.

The development of the Kepco site is a core part of the city’s plan to designate areas such as the Kepco land and stadiums in Jamsil under its MICE (meetings, incentives, conferences, exhibitions) project.

“Fostering the MICE industry is our four-year city development plan and directly related to our effort to revive the city economy,” said an official from the Seoul Metropolitan Government. “We will discuss with Hyundai how to maximize the benefit for Seoul citizens.”

First on the agenda will be the level of contributed acceptance. Under the National Property Act, if a private party wants to develop a large-scale project, it has to donate facilities or land to the local government.

In exchange for changing the land’s use from residential to commercial, Seoul has asked 40 percent of the land’s appraised value. Hyundai will try to lower that percentage.

The city’s appraised value will differ from Kepco’s 3.3 trillion won. Industry insiders speculate Hyundai’s could be required to contribute land or related facilities worth as much as 2 trillion won.

Even when the two sides have agreed on the level of contributed acceptance, Hyundai’s plan to develop the land still needs to be screened by the city government. The conglomerate’s plan will be assessed by various committees for its effect on areas such as traffic, the environment and the cityscape.

The Seoul Metropolitan Government already said that inside its international complex, there has to be a conventional exhibition hall and accommodation facilities that occupy more than 15,000 square meters.

Hyundai said that since most of global business center development is in accordance with the city government’s plan, it expects smooth negotiations. The Gangnam District Office, which also is an important party to the negotiations, has welcomed Hyundai’s move to the Kepco land as a boost in tax revenue.

However, industry insiders estimate it could take as long as five years for Hyundai to obtain approvals.

For construction, Hyundai Motor Group’s construction arms - Hyundai Engineering and Construction and Hyundai Engineering - are likely to get the job as working with affiliates would enable smooth communication and reduce costs.

Analysts expect the construction cost to exceed 3 trillion won, more than for the second Lotte World that is being developed by Lotte Group in Jamsil-dong, southeastern Seoul.

The first phase of construction will be the headquarters that would consolidate all the group’s affiliates in one building. Under the revised law, Hyundai plans to build a building that is at least 100 stories high.

BY JOO KYUNG-DON [kjoo@joongang.co.kr]