Gunpo Beolteo and Mabel Districts Secure 400 Billion KRW Main PF... Daewoo E&C Credit Support as Driving Force

Successful Fundraising Amid PF Investment Aversion
Eugene Investment & Securities Leads Main PF Commitment
Despite High Interest Rates, Funds Flow to Prime Seoul and Gyeonggi Construction Projects

Daewoo E&C has successfully raised 425 billion KRW in project financing (PF) for the main redevelopment project of the Beolteo·Mabel District, a representative redevelopment project in Gunpo-si, Gyeonggi Province. The project financing is notable as it was secured despite difficulties in converting from a bridge loan to the main PF due to concerns over PF insolvency. It is analyzed that investor recruitment was achieved as Daewoo E&C, ranked among the top in construction capability, provided credit support for the subordinated loan of the PF.

According to the investment banking (IB) industry on the 5th, Seohae Comprehensive Construction (the developer of Beolteo·Mabel District) received a PF loan of 425 billion KRW under the lead management of Eugene Investment & Securities. The lead manager and the developer recruited investors (lenders) by dividing the loan into a senior loan of 395 billion KRW guaranteed by the Housing & Urban Guarantee Corporation (HUG) and a subordinated loan of 30 billion KRW according to repayment priority. Seohae Comprehensive Construction plans to use the raised funds to repay the bridge loan (ladder loan) borrowed for land acquisition before obtaining project permits and use the remaining funds for construction costs.

The Beolteo·Mabel District project is a large-scale redevelopment project located at 146-3 Geumjeong-dong, Gunpo-si, Gyeonggi Province. On the site, which was previously an industrial area, eight apartment buildings with 1,072 households ranging from two basement floors to 45 floors above ground and neighborhood living facilities will be constructed. Daewoo E&C is in charge of construction and will start in March. After a three-year construction period, it is scheduled to be completed in 2027. Daewoo E&C announced in October last year that it had signed a contract worth 290.4 billion KRW with Seohae Comprehensive Construction for construction costs.

The maturity of this subordinated PF loan is around January next year, with a loan period of less than one year. Since the subordinated PF matures before Daewoo E&C completes the construction, Seohae Comprehensive Construction must refinance or repay the funds at maturity. Due to concerns about the construction project, PF loan interest rates are soaring, so it is interpreted that the plan is to secure funds short-term first and refinance once the market calms down somewhat.

At the same time, Daewoo E&C provided a debt assumption agreement to the lenders who lent the project funds during this PF financing process. The debt assumption agreement is a type of credit support contract in which the developer, Seohae Comprehensive Construction, agrees to take responsibility for repayment if it fails to properly repay the principal and interest of the PF loan due to low sales rates, etc.

The background of successfully securing funds despite the difficulty of converting bridge loans to main PF is analyzed to be the credit support provided by Daewoo E&C. An IB industry official said, "Currently, there are only a few construction companies in the PF market that can be trusted for credit support," adding, "Daewoo E&C, ranked third in construction order after Samsung C&T and Hyundai Engineering & Construction, plays a major supportive role in financing by providing credit support for PF loans."

A Daewoo E&C official explained, "Daewoo E&C provided credit support only for the subordinated loan of 30 billion KRW, excluding the senior loan of 395 billion KRW guaranteed by HUG," and added, "While raising the main PF of 425 billion KRW, the related contingent liabilities only increase by 30 billion KRW."

Previously, in October last year, Daewoo E&C succeeded in raising 525 billion KRW in main PF funds for the Eunhwa Samji District in Cheoin-gu, Yongin-si, Gyeonggi Province, with Leading Investment & Securities as the lead manager. The Eunhwa Samji District is a large-scale development project consisting of 30 buildings with 3,724 households, ranging from four basement floors to 28 floors above ground. The project’s feasibility improved with the arrival of the Yongin semiconductor cluster nearby, and the PF loan was made possible as Daewoo E&C provided credit enhancement for a subordinated loan of 50 billion KRW.

An industry insider evaluated, "Daewoo E&C has been rapidly clearing local PFs since it gave up the construction rights for the Ilsan-dong mixed-use complex project in Dong-gu, Ulsan last year," adding, "With steady repayment of short-term borrowings and improved financial structure, PF loans for major construction sites are being secured even in a difficult environment." However, the insider also noted, "Overall, concerns about PF in the market remain high, and Daewoo E&C still holds contingent liabilities in the trillion KRW range, so interest rates remain at a high level."