[News Inside Companies] Gangwon-do Legoland Becomes the 'Storm Core' of the Capital Market

Legoland Korea Resort, Chuncheon-si, Gangwon Province. / Photo by Legoland official website capture

Attention is focused on Legoland in Chuncheon, Gangwon Province, which has become the 'epicenter' of the corporate financing market. The Legoland project, which broke ground in 2011 with the goal of becoming the 'largest theme park in Asia,' has faced continuous difficulties from the start.

Legoland is a theme park planned by the Danish toy manufacturer 'Lego.' It was first established in Billund, Denmark, where Lego's global headquarters are located, in 1958, and subsequently expanded worldwide due to its tremendous popularity.

The Korean Legoland project took its first step in 2011 when Gangwon Province signed a Memorandum of Agreement (MOA) with the UK theme park developer 'Merlin.' Merlin is the world's second-largest theme park company after Disney in the United States and has collaborated with Lego since the time the Danish Legoland project was underway.

Gangwon Legoland was selected to be located on Jungdo Island in Uiam Lake, Chuncheon City, and its official name is 'Legoland Korea Resort.' It was planned to be the largest theme park in Asia, covering a total area of 84,700 pyeong (equivalent to 39 soccer fields), including a water park, theme village, marina, and hotel. It was also expected to attract 2 million tourists annually and create over 1,000 new jobs, revitalizing the local economy.

However, difficulties arose from the early stages of development. In 2014, a large-scale Bronze Age archaeological site was discovered at the planned construction site.

Legoland Key Information

Some argued that the project should be halted to preserve the archaeological site, but the controversy was temporarily settled when the Cultural Heritage Committee conditionally approved the development on the premise of relocating and preserving the site.

Nevertheless, the construction faced numerous obstacles afterward. Due to funding shortages, the project stagnated until the end of 2018, and only after the construction company Merlin and others signed a Master Development Agreement (MDA) to directly invest and manage development did progress accelerate. There was also controversy over unfair contracts. Gangwon Jungdo Development Corporation (GJC), established by Gangwon Province to develop the theme park and secure stable funding, reported to the Gangwon Provincial Council that it would receive 30.8% of Legoland's rental income as equity after investing 80 billion won in the project. However, it was later discovered that the actual figure recorded in the contract was only 3%.

Originally scheduled for completion in 2018, Legoland held its groundbreaking ceremony three times and postponed its opening seven times before finally holding a completion ceremony on March 26 and officially opening on May 5.

In 2020, while Legoland construction was underway, GJC needed funds to build infrastructure such as roads and water supply facilities near Legoland. That year, GJC established a Special Purpose Company (SPC) called 'Iwon Jeilcha' and issued Asset-Backed Commercial Paper (ABCP) worth 205 billion won. ABCP is a commercial paper issued with real estate or bonds as collateral, allowing short-term financing but with a short maturity.

Legoland Korea officially opened on Children's Day, May 5. / Photo by Yonhap News

The ABCP issued by Iwon Jeilcha was backed by a payment guarantee from Gangwon Province, a local government, which strengthened its credit, allowing the market to absorb it without difficulty at the time. Credit rating agencies rated its credit grade as A1 (the highest level of timely repayment ability). Legoland ABCP is held by 10 securities firms and 1 asset management company.

However, Gangwon Province decided last month not to pay the maturity amount of the ABCP due on September 29. Furthermore, on the 28th of last month, Kim Jin-tae, Governor of Gangwon Province, said, "We have decided to apply for GJC's rehabilitation (to the court)" and added, "If the court-appointed manager sells the corporation's assets at a fair price, the loans can be repaid," which further heightened market anxiety. Since all debt repayments are frozen during rehabilitation proceedings, institutions find it difficult to recover their investments. As a result, the ABCP's credit rating was downgraded to C on September 30, one day past maturity, and further downgraded to D (default) on October 4.

The sudden default of an A1-rated CP guaranteed by a highly reliable local government caused investor sentiment in the short-term financing market to freeze abruptly. As a consequence, issuance yields for corporate bonds and CPs surged. If bond yields do not stabilize, corporate liquidity will deteriorate, potentially leading to a wave of corporate bankruptcies.

Currently, the Gangwon Provincial Council has begun formulating comprehensive measures regarding the ABCP repayment issue. The Financial Services Commission has announced plans to implement measures to stabilize the financial market, including restarting the bond stabilization fund and preparing capital calls. Legoland, which started 11 years ago with the ambition of becoming the 'largest theme park in Asia,' has unexpectedly triggered a butterfly effect in the domestic capital market amid various adverse conditions.