Ailing land project gets new life via support from city gov`t

The Seoul city government said Monday that it will accept request by Korail, the state-run rail company, to normalize the development project for the Yongsan International Business District, which is reeling after a developmental venture company defaulted on interest payments.

Lotte Tour, the project`s second-largest shareholder with an investment of 170 billion won (152.8 million U.S. dollars), or 30 times its equity capital, also applied for court receivership.

In a news conference at City Hall on Monday, Lee Je-won, head of the Urban Planning Department from the Seoul city government, said, "We will actively engage in business normalization by operating an emergency planning team. We will make a prospective examination on matters that fall under the jurisdiction of city development law."

This means the city can reduce the number of business sites after gathering the opinions of residents on site use. Korail wants the city to promptly pass the approval of business site changes if Seobu Ichon-dong is excluded.

Lee said, "In 2007, more than half of residents at Seobu Ichon-dong agreed to the project, and we came up with legal conditions for the project. But nearly half still oppose the project, making it difficult to promote it. We can consider excluding areas that do not want the promotion of business after gathering opinions."

The city government also said it will examine other Korail demands, including prompt approval for other businesses, categorizing state-owned land as free, and providing sales proceeds as land repayment bonds rather than cash.

The Yongsan development project has yet to get approval from the city government due to funding difficulties that began in September last year. The Seoul city government said approval will be promptly granted because business promotion will fail unless approval is made by April 21, but the city remains negative on the floor area ratio and building coverage.

Korail welcomed the city`s support plan, with one source saying, "Seoul Metropolitan Government showed its will to actively involve in the project`s normalization. We now await active participation of private investors."

The default risks of the project`s partner companies are a concern, however. Lotte Tour said Monday that it applied for court receivership with the Seoul Central District Court. Stock exchange of the company was suspended the same day after Daesung Accounting Corp. rejected giving an opinion on Lotte Tour`s fiscal 2012 audit report. Korea Exchange will accept objections to Lotte Tour`s delisting from the stock market until March 27.

yunjung@donga.com