Lotto Subscription 'Raemian Onepentas', Additional 110 Billion Won Raised Due to Project Delay

Additional Project Funding Secured with Samsung C&T Guarantee
External Borrowing Expanded Due to Contractor Change Amid Construction Cost Increase
Quick Recovery of Project Costs Possible with July Sales Injection

The Banpo 'Raemian Onepentace' development association, which has attracted attention as a 'lottery subscription,' has raised an additional 110 billion KRW in project funds due to repeated project delays. This is because the demand for funds such as construction costs and financial expenses continues, while the inflow of funds such as deposits is also delayed due to the delay in sales. It is expected that once the sales price is finalized and post-sale begins, funds will flow in from the buyers, allowing all existing loans to be repaid.

[Image source=Yonhap News]

According to the investment banking (IB) industry on the 23rd, the Shinbanpo 15th Housing Reconstruction Maintenance Project Association (Shinbanpo 15th Association) raised 110 billion KRW in funds with a payment guarantee from Samsung C&T, the contractor of Raemian Onepentace. Yuanta Securities took over all loans through a special purpose company (SPC) and then issued securitized bonds based on these assets. The loan maturity is until December this year.

The Shinbanpo 15th Association increased its loan to 190 billion KRW while repaying a 150 billion KRW PF loan that matured in April. At that time, Shinhan Investment Securities was known to have underwritten and supported the reconstruction association with repayment of existing loans and new project funds. The maturity of this PF loan is until early November. In the past month, about 300 billion KRW has been raised in two rounds.

The Raemian Onepentace project association has relied mostly on external borrowing for construction and other project costs as it shifted from pre-sale to post-sale. In the case of pre-sale, a significant portion of construction costs is covered by deposits or interim payments from buyers, which is different. Samsung C&T, the contractor, has received construction costs through project loans directly guaranteed by itself.

The association, which recently applied for a sales price review for post-sale, also received a land price appraisal three years ago in 2021 to calculate the sales price. However, due to conflicts over construction costs, the contractor was replaced, and under regulations such as the price ceiling system, the project switched to post-sale to maximize the price. During the project delay, the burden of funds increased due to rising construction costs and interest rates.

Replacing the contractor also contributed to increasing the financial burden. Early in the project, conflicts arose over design changes and increased construction costs, leading to the replacement of the contractor from Daewoo Construction to Samsung C&T. Daewoo Construction filed a lawsuit to confirm its contractor status, and the association ultimately lost after three trials. The compensation to be paid to Daewoo Construction through the lawsuit is expected to reach several tens of billions of KRW.

The post-sale schedule, which was hard to secure, has also been somewhat delayed. Seocho District Office is known to have scheduled a review committee meeting in June regarding the sales price review application submitted by the association in April. It takes about a month to finalize the sales price and start sales. An IB industry official diagnosed, "As sales are delayed, the inflow of funds is also delayed, making it inevitable to raise additional funds."

Although external borrowing has increased due to the project cost burden, if sales are successful, it is expected that the loans can be repaid smoothly. An industry official said, "Although there is controversy over high sales prices, considering the surrounding market prices, it is expected that the winners of the subscription will gain significant profits, so there is almost no concern about unsold units," adding, "Once deposits and interim payments come in, all project costs invested through external borrowing so far can be recovered."

The official added, "However, if the sales price is set based on land value from three years ago, the sales price may be lower than initially expected," and "In this case, the association's profit will decrease, but the subscription rate will increase further, making fund recovery smooth."