The development project at the former Hanjin Heavy Industries site in Dadae-dong, Saha-gu, Busan (Dadae Marine City) is at risk of going to auction due to the developer’s delinquency in interest payments on a bridge loan (PF for land acquisition stage). The National Federation of Agricultural Cooperatives and 90 Agricultural Cooperatives across the country have provided a total of 200 billion won in bridge loans for this project. If this site is classified as potentially defaulting, the Agricultural Cooperatives are expected to incur losses exceeding 100 billion won.
On the 29th, sources from financial and local political circles in Busan indicated that the real estate project financing (PF) group for Dadae Marine City recently informed the project owner that it would not permit an extension of the bridge loan maturity. Reports suggest that the project owner has been in arrears on the bridge loan interest for nearly a year.
The bridge loan obtained by the project company amounts to 370 billion won, with Saemaul Geumgo contributing the largest share of 200 billion won. The Saemaul Geumgo Central Federation and its 90 branches collectively lent funds. Additionally, Hana Securities, Kyobo Securities, and BNK Investment & Securities combined to lend a total of 180 billion won.
It has been reported that the major shareholders opted not to extend the maturity date, concluding that the project would likely struggle to proceed due to the continuous delays in principal and interest repayments by the project owner. In May, financial authorities revised the best practices for project financing in the mutual finance sector, establishing strict guidelines that mandate a public auction every quarter without delay if delinquency exceeds six months. The interest rate on the bridge loan for this project is between 8.1% and 11% annually, and the project owner has defaulted on hundreds of billions of won in interest already.
H Company, the project’s operator, is in the process of signing a business agreement (MOU) with a major construction firm and is aiming to transition to the main project financing in October. However, this site already faced funding challenges when the bridge loan matured in January of last year.
A view of a Saemaul Geumgo branch in Seoul. /News 1
During H Company’s difficulties in securing funding for the transition to main project financing, some lenders informed them that they would not extend the bridge loan maturity and would seek to recover their investments. Following negotiations, H Company and the lenders agreed to extend the bridge loan maturity to April that year, contingent on raising 40 billion won in interest expenses. H Company managed to raise approximately 20 billion won, prompting lenders to extend the maturity by 10 months. However, when the additional funds were exhausted, H Company’s interest delinquencies resumed.
According to financial authorities’ guidelines for restructuring real estate project financing, Dadae Marine City now qualifies as a candidate for public auction. For H Company to receive an extension of the bridge loan maturity, it must secure consent from at least 75% of its lenders based on evaluations by an external expert agency. Given that the National Federation of Agricultural Cooperatives has already decided against extending maturity, obtaining the consent of 75% of lenders could prove challenging. Financial authorities are exerting pressure on financial institutions to submit restructuring plans for projects with inadequate business viability at an early stage.
Should this site be sold via public auction, 90 Saemaul Geumgo organizations nationwide are expected to absorb significant losses. Businesses assessed as “at risk of insolvency” in the PF evaluation must reserve 75% of their loan amounts. Based on this assessment, Saemaul Geumgo is expected to reserve 150 billion won. Given the scale of the project, it remains uncertain whether other businesses will participate in a public auction. Currently, a “mini new city” project is planned for this site, which will include 11 buildings of up to 48 stories, housing 3,095 households, a surface-level park, an elementary school, and an underground parking facility.
In Busan, there are rising concerns regarding H Company’s capacity to carry out its operations. Local political figures indicate that H Company is a special purpose corporation (SPC) established by a family-operated golf course and resort development company, which reportedly holds 100% ownership of H Company’s shares. A local political source remarked, “There have also been claims in the Busan City Council that Busan City is being led around by a private developer whose business competencies have not been validated.”
A Bird’s-Eye View of the Dadae Marine City Development Project in Busan
Dadae Marine City, the much-anticipated marine tourism hotel project being constructed on the former Hanjin Heavy Industries site, is facing significant financial challenges that jeopardize its future. With a bridge loan in jeopardy, the implications for local financial institutions and the overall development landscape in Busan are immense.
Current Status of Dadae Marine City
The Dadae Marine City development project, situated in the Saha-gu district of Busan, aims to transform the former Hanjin Heavy Industries site into a vibrant marine tourism destination. However, recent financial troubles have threatened its progress. The project is at risk of being put up for auction due to the developer’s failure to pay interest on a substantial bridge loan amounting to 370 billion won.
Financial Overview
The bridge loan, primarily from the National Federation of Agricultural Cooperatives and 90 affiliated Agricultural Cooperatives nationwide, totals 200 billion won. Other significant contributions come from financial institutions such as Hana Securities, Kyobo Securities, and BNK Investment & Securities, collectively amounting to 180 billion won. The interest rates for this loan range between 8.1% and 11% per annum, which has already resulted in widespread concerns over the project’s financial viability.
Project Financing Delays
Financial circles report that the real estate project financing (PF) group involved with Dadae Marine City has recently declined a request from the project owner for an extension of the bridge loan maturity. The developer has reportedly been in arrears for nearly a year, creating a precarious situation where continued financial support seems unlikely.
Consequences of Delinquency
According to the revised financial guidelines from authorities, projects exhibiting delinquency for over six months may face mandatory public auctions. The Agricultural Cooperatives anticipate potential losses exceeding 100 billion won if the Dadae Marine City project is classified as a default. This looming threat highlights the immense risk involved for stakeholders in the local financial sector.
The Role of Major Stakeholders
Project Operator H Company
The project operator, referred to as Company H, has been pushing forward with plans to convert the current financing structure. They aim to solidify a business agreement (MOU) with a more substantial construction firm in hopes of enhancing the project’s prospects. However, prior fundraising conflicts have cast doubt on their ability to manage the financial complexities involved.
Impact on Agricultural Cooperatives
Should the project face auctioning, 90 Agricultural Cooperatives are poised to absorb substantial financial losses. These institutions must allocate reserves equivalent to 75% of their loan amount, which, given the risks involved, could lead to significant monetary setbacks. As per evaluations, Saemaul Geumgo would need to set aside approximately 150 billion won, further complicating its operational liquidity.
Potential Development Features
If the Dadae Marine City project proceeds as planned, it proposes to construct multiple high-rise residential buildings with up to 48 floors, along with 3,095 households. Additional features being considered include:
- Above-ground parks to enhance public recreational space
- An elementary school to accommodate growing families
- Underground parking facilities to manage urban congestion
Local Political & Community Concerns
Local political opinions are increasingly critical of the developer’s ability to execute the Dadae Marine City project as intended. Concerns have been raised regarding the legitimacy of Company H, which is characterized as a special purpose corporation (SPC) connected to a golf course and resort development entity operated by a private family. The apprehension surrounding the private developer illustrates a broader skepticism about the project’s future.
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Strategies for Ensuring Project Viability
For stakeholders wanting to revitalize the Dadae Marine City project, several strategies may be considered:
- Transparency in communication: Keeping all stakeholders informed on project developments can foster collaboration and confidence.
- Financial restructuring: Engaging financial institutions for potential refinancing options may alleviate immediate financial pressures.
- Community engagement: Involving local communities in planning processes ensures projects meet neighborhood needs and enhances public support.
Conclusion
The fate of the Dadae Marine City development on the former Hanjin Heavy Industries site serves as a pivotal touchpoint for the future of marine tourism in Busan. As the project navigates significant financial hurdles, its potential impact on local economies, communities, and stakeholders remains profound.
