[Asia Economy Reporter Lim Jeong-su] Songdo International City Development (NSIC), responsible for the development and implementation of the Incheon Songdo International Business District, has secured 486 billion KRW in project financing (PF) refinancing funds. The construction company, POSCO Engineering & Construction, provided a debt assumption agreement and offered the project site and buildings as collateral. The project, which began in 2002 to create an international business district twice the size of Yeouido, has yet to be completed after 19 years, with continuous refinancing of land-backed PF.
According to the investment banking (IB) industry on the 21st, NSIC received a credit line loan of 486 billion KRW from a consortium of lenders. The loan is structured by collateral and repayment priority into senior tranche (Tranche A) of 300 billion KRW, mezzanine tranche (Tranche B) of 100 billion KRW, and junior tranche (Tranche C) of 186 billion KRW. KB Securities acquired 100 billion KRW worth of mezzanine loans through a special purpose company (SPC) and issued asset-backed securities based on the loan principal and interest.
NSIC provided large-scale land within the Songdo International Business District as collateral for the loan. The collateral consists of commercial land measuring 150,900㎡ (45,727 pyeong) and residential land measuring 71,772㎡ (21,749 pyeong) within the district. The land was entrusted to a real estate collateral trust, and senior, mezzanine, and junior trust beneficiary rights were issued as collateral. Junior lenders were provided with exclusive collateral on some land within the international business district.
As with previous loans, POSCO Engineering & Construction provided a debt assumption agreement for this PF. If NSIC fails to repay the PF and loses the benefit of the term, POSCO Engineering & Construction will fulfill the debt on behalf of NSIC.
Additionally, if POSCO Engineering & Construction’s credit rating falls to A3+ or BBB+ or below, the loan claims will lose the benefit of the term. POSCO Engineering & Construction’s current credit rating is A+, which is three notches above the trigger for loss of benefit of term. The funds raised will be used to repay existing PF borrowings.
In the early stages of the project, NSIC raised trillions of KRW in funds for land development purposes such as reclamation, by project package. These borrowings have been repaid as each package progressed, leaving 1.6 trillion KRW in borrowings as of the end of last year.
NSIC was established in 2002 by POSCO Engineering & Construction and the U.S.-based investment company Gale International at a 3:7 ratio. The project was halted for about three years due to disputes between NSIC and POSCO Engineering & Construction, but resumed after POSCO Engineering & Construction repaid NSIC’s borrowings on its behalf following NSIC’s failure to repay.
During this process, POSCO Engineering & Construction sold Gale’s shares to investment companies based in Hong Kong. Currently, POSCO Engineering & Construction (29.9%), ACPG K-Land (45.6%), and Troika Investment (25.4%) participate as shareholders.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
