March 14, 2013 13:08
Korea's biggest urban development project worth W30 trillion has collapsed because the developer has defaulted on its debt (US$1=W1,098).
W4 trillion in investments is lost, and residents in the affected areas of Yongsan in central Seoul are gearing up to take legal action.
Dream Hub, the developer set up for the project, defaulted on Wednesday on W5.2 billion in interest on asset-backed commercial papers. Dream Hub had issued W2.4 trillion worth of ABCPs and asset-backed securities.
State-run rail operator KORAIL is legally bound to repay the entire debt within 185 days, in which case Dream Hub can avoid bankruptcy. However, KORAIL would end up gaining the rights to the property and the project led by Dream Hub will be scrapped.
Around 2,300 households in the affected areas in Yongsan, who were barred from selling their homes in the last six years while the project was being pursued, are expected to suffer huge losses. Many of them took out an average of W300 million in loans expecting to sell their property at high prices once the project got underway. But plummeting prices due to the project's collapse will make it difficult for them to repay their debts.
The residents are considering lawsuits against KORAIL and the Seoul Metropolitan Government for the project's failure.
Dream Hub may seek court receivership and take steps to resume the project, or KORAIL may take back the land and come up with a new plan. Another option is for the government to intervene and propose another solution.
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