The ambitious plan to redevelop Seoul’s Yongsan into a landmark international business district is heading toward collapse with its developer on the verge of bankruptcy, having defaulted on its business loan interest.
In the worst-case scenario, the project failure may result in capital impairment of the state-run rail operator KORAIL and an unprecedented class action suits involving dozens of investor companies and thousands of victimized residents.
Dream Hub announced its default status Wednesday, having failed to pay back the 5.9 billion won ($5.4 million) in interest on its asset-backed commercial paper. Creditor banks extended the deadline until noon Wednesday, in the hope of saving the project, but the developer failed to secure funds.
|The Yongsan development district in central Seoul. (Park Hae-mook/The Korea Herald)|
Though government officials and key shareholders claimed that this did not necessarily mean immediate bankruptcy, the outlook for the faltering project is bleak.
“Dream Hub will first follow the procedure for a corporate revival process,” said a Land Ministry official.
“Bankruptcy is to come afterward, only if the given option turns out to be infeasible.”
Residents of Seobuichon-dong, however, pledged to file a class action against the largest shareholder KORAIL, as well as the Seoul Metropolitan Government which licensed the project. It was also former Seoul Mayor Oh Se-hoon who incorporated the district into the redevelopment blueprint.
“The residents have been restricted from exercising their property rights for years,” said a representative of the resident emergency committee on Wednesday.
“Many of them have taken out large sum loans, relying on the city’s big talk.”
Also, private investors such as Lotte Tours and Samsung C&T are considering filing a capital refund litigation, in which case the total amount may exceed 700 billion won.
They may also start up additional legal battles with KORAIL, as both groups have been holding each other responsible for the financial difficulties.
The 31 trillion won Yongsan project kicked off in 2007 and was further boosted by the city government, but its financing soon dwindled away, causing a backlash from the residents and conflicts among the stakeholders.
By Bae Hyun-jung (firstname.lastname@example.org