Extension of Maturity for 17 Unstarted PF Projects
Mitigation of Liquidity Risk from PF Contingent Liabilities
Lotte Construction has alleviated liquidity concerns arising from PF (Project Financing) defaults by extending the maturities of PF loans across multiple construction projects by three years. A consortium consisting of KDB Industrial Bank, four major commercial banks, and securities firms has created a 2.3 trillion KRW fund to support Lotte Construction, leading to successive extensions of loan maturities for 17 Lotte Construction guaranteed PF projects. The loans for unstarted projects extended just the day before amounted to 2 trillion KRW.
Lotte Construction Contracting Project Loans Extended by 2 Trillion KRW
According to the investment banking (IB) industry on the 7th, Secondo Co., Ltd., the project implementation corporation, recently extended the maturity of a 361 billion KRW PF loan to 2027, with FL Asset Management as the lead manager. This converted the previously short-term extended construction cost loan into a long-term loan with a three-year maturity. Lotte Construction provided joint guarantees to Secondo Co., Ltd.
Secondo Co., Ltd. is a project implementation corporation established to develop Homeplus Yeongdeungpo Branch, Geumcheon Branch, Dongsuwon Branch, and Centum City Branch into mixed-use residential complexes. With a basic contract amount of 836.7 billion KRW, Secondo plans to acquire all four Homeplus branches, after which Lotte Construction will sequentially construct mixed-use residential complexes on these unstarted projects.
Following the Taeyoung Construction incident, concerns about Lotte Construction’s funding arose, making the success of refinancing acquisition funds a critical issue. A PF industry insider evaluated, "With Lotte Construction completing refinancing of the funds borrowed to acquire the four Homeplus branches, liquidity concerns for these projects over the next three years have subsided."
Similarly, Gieun Sendongdaemun Jeilcha Co., Ltd. extended the maturity of a 280.5 billion KRW loan by three years with joint guarantees from Lotte Construction. Gieun Sendongdaemun Jeilcha Co., Ltd. is a project implementation corporation developing residential and officetel complexes in Yongdu-dong, Dongdaemun, Seoul, as well as Homeplus Gimpo Branch, Incheon Gajwa Branch, and Buk Suwon Branch.
MS Industrial Development Co., Ltd., The Synergy Co., Ltd., and Nari Baek City Development Co., Ltd. also succeeded in extending the maturities of construction cost loans of 100 billion KRW, 150 billion KRW, and 70 billion KRW respectively to 2027, supported by Lotte Construction’s payment guarantees. These companies are project implementers for mixed-use residential development in Bon-dong, Daegu, apartment development in Bojeong-dong, Yongin, Gyeonggi Province, and urban development in Geumo-dong, Uijeongbu, Gyeonggi Province.
Additionally, project implementation corporations for joint residential developments in Namsan-dong and Daebong-dong, Jung-gu, Daegu (340 billion KRW), Lotte Mart Dobong Branch development (210.7 billion KRW), and Daejeon Doan 2-9 District development (200 billion KRW) have either extended their matured loans or plan to do so soon.
Expectations for Positive Capital Circulation Supported by 2.3 Trillion KRW PF Support Fund
The success in extending maturities of loans related to PF projects guaranteed by Lotte Construction is mainly due to the recently established 2.3 trillion KRW Lotte Construction support fund, which has provided capital primarily to unstarted projects in bridge loan status.
Last month, Lotte Group, together with five banks including Industrial Bank, Shinhan, KB Kookmin, Hana, and Woori, as well as three securities firms including Kiwoom Securities and Daishin Securities, formed a 2.3 trillion KRW Lotte Construction PF support fund. Banks provided 1.2 trillion KRW in senior loans, securities firms contributed 400 billion KRW in mezzanine loans, and Lotte Group affiliates took on 700 billion KRW in subordinated loans. The fund has a three-year maturity with an average borrowing rate of 8.5?8.8%.
Lotte Construction plans to use these funds first to repay a 1.5 trillion KRW fund created last year with Meritz Securities and then use the remaining funds to repay maturing PF contingent liabilities. The PF projects supported by the fund are reportedly 17 housing projects where Lotte Construction is the contractor.
An IB industry insider said, "Loans for Lotte Construction’s unstarted PF projects extended over the past two to three days amount to 2 trillion KRW," adding, "With the refinancing of maturing contingent liability borrowings progressing steadily through the 2.3 trillion KRW PF support fund, liquidity concerns regarding Lotte Construction are significantly easing."
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