[Exclusive] K-Water Sells Hwaseong Theme Park Site to Shinsegae at a Bargain Price

Shinsegae Acquires Korea Water Resources Corporation for 325.6 Billion Won
Development Gains Not Reflected in Appraisal
If Public Offering Guidelines Followed, Sale Price Could Double
Possibility of Breach of Trust Due to Unfair Profits

The Korea Water Resources Corporation was found to have sold business land to the Shinsegae Group at a bargain price while promoting the Hwaseong International Theme Park complex development project. By violating the public offering guidelines, they effectively gave a kind of preferential treatment to Shinsegae, and if the guidelines had been followed, they could have received about twice as much in land sale payments.

According to a comprehensive investigation by this newspaper on the 8th, the Board of Audit and Inspection conducted an audit of the Water Resources Corporation and uncovered that the land sale price (325.6 billion KRW) was determined based on an undervalued appraisal amount during the land supply contract process for Hwaseong International Theme Park. Consequently, in October last year, the Board requested disciplinary action against three Water Resources Corporation employees who calculated the appraisal value. The legal community interprets their actions as breach of trust causing damage to the Water Resources Corporation, and Shinsegae’s role as instigating breach of trust.

According to the Board of Audit and Inspection’s audit report, on November 13, 2018, the Water Resources Corporation issued a “Green City Hwaseong International Theme Park Complex Development Project Operator Public Offering” to sell the land it owned. On February 28 of the following year, a consortium of Shinsegae Property (90%), an E-Mart affiliate, and Shinsegae Construction (10%) submitted a sole bid and was selected as the preferred negotiation partner.

Subsequently, both parties began discussions to conclude a business agreement, during which it was revealed that the public offering guidelines had been violated. According to the public offering guidelines announced by the Water Resources Corporation (Article 38, Paragraphs 1 and 4), the land sale price must be finalized through an appraisal after the “Green City Development Implementation Plan” change notification reflecting the developer’s business plan is completed. However, the actual business agreement signed did not properly reflect the business plan submitted by Shinsegae. Shinsegae insisted that “the land sale price should not be significantly higher than the bid price of 325 billion KRW presented at the time of the public offering,” and the Water Resources Corporation accepted this proposal.

Shinsegae proposed installing a theme park on the tourism and leisure land, along with lodging facilities, retail facilities (premium outlet), and sports facilities (18-hole golf course). To do this, the land, which is a natural green area, must be designated as a tourism complex according to the Enforcement Decree of the National Land Planning Act. This designation relaxes building restrictions such as increasing building coverage ratio and floor area ratio and removing height limits. Naturally, the land sale price also increases.

However, the Board of Audit and Inspection pointed out that the Water Resources Corporation and Shinsegae signed a separate business agreement that did not reflect these changes, resulting in an undervalued appraisal. The appraisers involved in the appraisal also raised objections to the appraisal standards that did not reflect future value. Two appraisal firms submitted appraisal reports to the Water Resources Corporation in January 2021, adding separate opinions that “if designated as an amusement park in the future, changes in land value due to permitted uses and relaxed building coverage and floor area ratios were not considered.” An appraiser who participated in the appraisal stated to the Board of Audit and Inspection, “If the business plan had been reflected in the appraisal, the appraisal value would have increased by at least twice.” As a result, Shinsegae was able to purchase the business land for 325.6 billion KRW, which is 35% cheaper than the asking price of 504 billion KRW from 10 years ago.

Shinsegae and Water Resources Corporation’s Pre-Agreement on ‘3% Increase’... Organized Response Violating Public Offering Guidelines

The Hwaseong International Theme Park Complex Development Project is a plan to build a futuristic advanced complex city on a 4,189,000㎡ (1,270,000 pyeong) site within Songsan Green City, Hwaseong-si, Gyeonggi Province. The photo shows the hoarding at the international theme park construction site within Songsan Green City. Photo by Jo Yongjun jun21@

This bargain sale contract was revealed to be based on a prior agreement between both parties. The land price evaluated by the Water Resources Corporation before development was 315.9 billion KRW. According to the public offering guidelines, the ‘land sale price’ that Shinsegae would ultimately pay must be determined again through an appraisal reflecting development profits. Shinsegae submitted a written inquiry regarding the difference between the two appraisal amounts, and the Water Resources Corporation responded that “there is no significant difference.” Then, Shinsegae proposed to the Water Resources Corporation that they would contract at a price 3% higher than the appraisal amount to be evaluated in the future (for the land sale price), and the Water Resources Corporation accepted this proposal, leading to Shinsegae’s selection as the preferred negotiation partner. Subsequently, both parties proceeded with discussions to lower the appraisal amount.

Water Resources Corporation employees in charge manipulated documents to conceal the problem of the appraisal not reflecting the effect of relaxed building restrictions, contrary to the public offering guidelines. Mr. A, who was the deputy manager at the time, deleted the phrase “appraisal will be conducted after the change notification of the implementation plan reflecting the business plan is completed,” which was originally written in the business agreement draft prepared according to the public offering guidelines. Also, despite receiving advice from an appraiser to revise the wording to reflect the land use plan, he did not make the changes. Mr. A testified during the Board of Audit and Inspection investigation, “I reported to Manager B (my superior) that the problem of not reflecting the effect of relaxed building restrictions existed, but I was told ‘the effect of relaxed building restrictions should not be reflected,’ so it seems I reviewed not to reflect the relaxation.” Manager B said, “I don’t remember.”

The Water Resources Corporation disciplined the employees in charge last year at the Board of Audit and Inspection’s request but did not take criminal prosecution measures. A Board of Audit and Inspection official said, “There may be differences between the legal community’s interpretation and the audit team’s judgment regarding ‘causing damage.’” A Water Resources Corporation official stated, “According to the ‘Act on Public Institution Audits,’ we cannot conduct overlapping audits to consider criminal prosecution. We concluded the matter by passing disciplinary measures based on the Board of Audit and Inspection’s investigation results.”

Shinsegae: “We Paid the Fair Price... Reflecting Future Value Is Inappropriate”

Shinsegae claims they are unfairly treated. They said they would not have participated in the public offering if the appraisal price reflected the land price increase after development. A Shinsegae representative explained, “Even if building restrictions were relaxed, we reflected the business agreement draft that only included changes in land use area by type based on the Water Resources Corporation’s written response that the appraisal amount would not change significantly, under mutual agreement.”

However, the Board of Audit and Inspection pointed out the problem that companies that gave up bidding because they expected the business agreement to be concluded according to the public offering guidelines were fundamentally deprived of opportunity. The Board said, “If a business agreement is concluded differently from the public offering guidelines, it could be abused to give preferential treatment to a specific company,” and “Even if the Shinsegae consortium proposes to change the appraisal principles to their advantage, the Water Resources Corporation should not accept it.”

The legal community views the actions of the Water Resources Corporation employees as criminal breach of trust, and Shinsegae’s role as instigating breach of trust. It is considered a transaction violating the public offering guidelines that caused damage to the Water Resources Corporation. A legal expert said, “Shinsegae is the beneficiary who gained profit through an improper proposal and could be punished as a co-principal offender of breach of trust.”

Hwaseong International Theme Park Drifting for 10 Years... 4.5 Trillion KRW Shinsegae Lifeline Project Faces Obstacles

The Hwaseong International Theme Park Complex Development Project is a plan to build a futuristic advanced complex city on a 4,189,000㎡ (1,270,000 pyeong) site within Songsan Green City, Hwaseong-si, Gyeonggi-do. The photo shows the eastern residential complex within Songsan Green City. Photo by Yongjun Cho jun21@

The Hwaseong International Theme Park complex development project is a plan to build a futuristic advanced complex city on a 4.189 million square meter (1.27 million pyeong) site in Songsan Green City, Hwaseong-si, Gyeonggi Province. It is 1.4 times the size of Yeouido, with a total project cost of approximately 4.5693 trillion KRW. Shinsegae plans to develop a theme park, water park, golf course, a hotel with 1,000 rooms, and residential complexes (6,283 apartment units and 530 single-family homes).

This project has faced many twists and turns since it began in 2007. Initially, a 5 trillion KRW resort project modeled after Universal Studios was promoted as a private contract planned by Gyeonggi Province, but the contract was canceled in 2013 due to the developer’s financial difficulties. Later, it was re-promoted as a presidential election pledge of the Park Geun-hye administration in 2015 but faced another suspension in 2018 when the Water Resources Corporation decided not to extend the business agreement deadline with the Universal Studios Korea consortium. The project was restarted again under the Moon Jae-in administration.

Shinsegae Group signed a land supply contract with the Water Resources Corporation in March 2021 for the theme park construction and shared the master plan with Hwaseong City and others in December last year, seemingly putting the project back on track. However, the audit by the Board of Audit and Inspection revealed that the business land was sold at a bargain price, bringing the project into a new phase. The land involved in this audit is the ‘tourism and leisure land (2.78954 million square meters)’ within Green City.

Industry insiders focus on the political situation as the background for the Water Resources Corporation’s reckless project promotion while violating the public offering guidelines. The project was re-promoted as a presidential election pledge under the Moon Jae-in administration, and Lee Jae-myung, the current leader of the Democratic Party of Korea and elected governor of Gyeonggi Province in the 7th local elections in 2018, showed strong determination to push the project forward, creating an atmosphere within the Water Resources Corporation that it could not be delayed any longer. Shortly after Shinsegae signed the land sale contract with the Water Resources Corporation, Lee sent a letter of appreciation to Shin Yong-jin, Chairman of Shinsegae, promising to “do our best to support the smooth progress and success of the project.”

Currently, with personnel actions following the Water Resources Corporation audit and other impacts, even if administrative procedures resume, the originally planned groundbreaking in 2025 seems difficult. Shinsegae said, “We will strive to promptly conclude discussions with the Water Resources Corporation so that administrative procedures can begin.”