RBDK Missed Final Payment Deadline on 30th Last Month
Cash-Strapped Emart Faces Funding Difficulties
Real Estate Market Slump Likely to Delay Sale Process
Emart is struggling with the sale of its Bucheon Jung-dong branch. The sale has fallen into uncertainty as the developer RBDK missed the payment deadline. For Emart, which needs to secure cash after a large-scale merger and acquisition (M&A), this is an unexpected obstacle. Under the current circumstances, a sale within the year is also uncertain.
On the 28th, according to the distribution and investment industry (IB), it was confirmed that RBDK and Emart have entered negotiations regarding the sale of the Bucheon Jung-dong store. Although there were concerns that the contract might be terminated as RBDK failed again to meet the payment deadline postponed once on the 30th of last month, Emart has resumed discussions with RBDK about contract fulfillment.
RBDK secured the status of preferred bidder by submitting a bid of 381.1 billion KRW for Emart’s Bucheon Jung-dong branch at the end of March last year. They proposed plans to build a complex facility including officetels to make it a landmark in Bucheon. The down payment of about 38 billion KRW, which is 10% of the acquisition price, was paid by borrowing from Korea Investment Real Asset (Korea Investment Development Frontier Blind General Private Equity Fund No.1). Although only the remaining balance of 343 billion KRW for land purchase was left, RBDK has not paid the balance even a year after obtaining the preferred bidder status. In September last year, RBDK also failed to meet the first balance payment deadline and agreed with Emart to pay an additional 10 billion KRW, raising the purchase price to 391.1 billion KRW.
Emart’s decision to return to the negotiation table despite the uncertainty of RBDK’s acquisition appears to be because the amount proposed by RBDK is quite attractive. The amount proposed by RBDK is about 150 million KRW per 3.3㎡ based on the land area (8,379.7㎡), and considering that real estate prices have dropped significantly compared to the first half of last year, a large discount rate is expected to be applied now. Even looking at the surrounding apartment prices, they have fallen about 20-40% compared to last year’s peak prices. When the sale was first announced last year, the maximum amount Emart could receive was expected to be around 300 billion KRW. Receiving 100 billion KRW more means that if Emart loses the RBDK option, its cash procurement plan will inevitably be disrupted.
From Emart’s perspective, which is trying to secure liquidity by selling stores, it is beneficial to receive a large amount and secure cash. Recently, Emart boldly closed its Gam-sam branch in Daegu Metropolitan City and Dong-gwangju branch in Gwangju Metropolitan City, where consumer traffic had stopped, and sold the real estate to convert it into cash. The sale of the Myeongil branch in Gangdong-gu, Seoul is also underway. Emart has reduced its own store ratio, which once approached 80%, and shifted to a lease format to rearrange assets. This move aims to improve the financial structure burdened after aggressive M&A.
Emart spent about 3 trillion KRW in 2021 to sell the e-commerce platform eBay Korea (now Gmarket) and used 5 trillion KRW for acquisitions such as W Concept and Starbucks Korea shares. During this period, short-term borrowings increased by 260% from 401.5 billion KRW in 2020 to 1.4637 trillion KRW in the first quarter of this year, and long-term borrowings rose about 185% from 411 billion KRW to 1.1753 trillion KRW.
However, it is uncertain whether the sale of the Emart Jung-dong branch will proceed smoothly. Due to the prolonged sluggish market conditions, including the fragile real estate project financing (PF), there is a possibility of failing to secure the balance payment through bridge loans. In the investment industry, there are also skeptical views about developing the land into a landmark such as officetels even if the land is acquired.
An investment industry official said, "When RBDK submitted the acquisition price, it is understood that the calculation process was similar to when Daewoo Construction purchased the Homeplus Bucheon Jung-dong site," adding, "Even if the business feasibility is evaluated by applying the acquisition price at that time under the current situation, the profit from the site is expected to be small, making it difficult to gather major lenders during the PF process."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
