Samsung C&T Corp., a construction arm of Samsung Group, said Monday that it will give up the right to build a landmark skyscraper in Seoul as part of efforts to put South Korea's largest urban development project back on track.
In return, Samsung C&T asked Korea Railroad Corp. (KORAIL), the state-run railroad operator, to immediately pay back 68.8 billion won (US$61.8 million) worth of convertible bonds.
"We decided to accept a KORAIL proposal to normalize the Yongsan development project," a Samsung C&T official said.
KORAIL has said it will take over the convertible bonds from Samsung C&T in exchange for Samsung C&T's abandoning of the right to build a 111-story skyscraper in Yongsan, located in the heart of Seoul.
The move comes as the state-run railroad operator has pressed Samsung C&T and 28 local companies involved in the development project to accept a series of its measures aimed at normalizing the troubled project.
Last week, some companies accepted the KORAIL's offer that it will provide 260 billion won in emergency funds to salvage the project if the 29 investors agree to revise details of the project and overhaul the management of Yongsan Development Co. and Dreamhub Project Financing Vehicle Co.
Yongsan Development, the asset manager of the project financing vehicle, a special purpose company created for the project, failed to pay back 5.2 billion won in interest on its asset-backed commercial paper earlier this month.
The default has prompted KORAIL, the biggest shareholder of the project financing vehicle with a 25 percent interest, to announce the set of measures to try to revive the 31 trillion won project.
The railroad operator plans to finalize plans on how to normalize the project later Monday.
The project calls for the construction of high-rise commercial buildings, apartments, luxury hotels and a shopping complex in Yongsan, transforming it into an international business hub by 2016.
Dreamhub Project Financing Vehicle is scheduled to hold a board of directors' meeting and a general meeting of shareholders on April 2 to approve KORAIL's offer.
Meanwhile, the Ministry of Land and Transportation has delivered an official note to KORAIL saying that a public institution should inform the ministry of detailed plans on any incidental business projects in which it holds more than a 30 percent stake, signaling that it virtually opposes KORAIL's move to raise its stake in the project.
So far, the ministry has been taking a hands-off stance toward the development project as its intervention could result in unwanted problems.
"The ministry's move indicates that KORAIL should boost its financial health, warning that the railroad operator should be more cautious on the project," said a ministry official.
Also, should the Dreamhub Project Financing Vehicle raise its capital base to 5 trillion won from the current 1 trillion won, KORAIL's stake in the financing vehicle would rise to 57 percent from the current 25 percent, which could put the financing vehicle under government control, according to market watchers.