Local Prime Project Also Uses Main PF... Gwangju Jungoe Park Development Secures 480 Billion Won Funding

Securities Firms Struggling with Poor Performance Join Major Lenders in Large Numbers
630,000-Pyeong Scale Mega Private Park Special Project
Provincial Location but Low Risk of Unsold Units and Strong Project Viability

Following Seoul and Gyeonggi, some prime apartment projects in regional areas are also succeeding in raising funds through project financing (PF). Although the issue of non-performing PF loans in the secondary financial sector has not been completely resolved, it is interpreted that funding is being supplied to some regional projects through a process of 'sorting the wheat from the chaff' in PF projects.

Gwangju Hillstate Jungoe Park Bird's-eye View

According to the investment banking (IB) industry on the 19th, Gwangju Jungoe Park Development Co., Ltd. received a main PF loan of 480 billion KRW from a consortium of securities firms. The investor recruitment was divided into senior loans of 430 billion KRW and subordinated loans of 50 billion KRW according to collateral rights and repayment priority.

The main PF consortium included Korea Investment & Securities, Samsung Securities, Meritz Securities, Hyundai Motor Securities, and Shin Young Securities. These securities firms acquired the loans through a special purpose company (SPC) and then issued short-term bonds using the loan principal and interest as underlying assets (a type of collateral).

The securities firms participating in the consortium provided credit lines to the SPC to supply liquidity if the developer fails to repay the PF loan on its own. Due to concerns about non-performance, they did not acquire the PF loans with their own capital but only provided partial credit lines and then sold them in the market (sell-down).

Gwangju Jungoe Park Development is the developer conducting the Jungoe Park development project in San 68, Unam-dong, Buk-gu, Gwangju Metropolitan City. Hyundai Engineering and Bumyang Construction are participating as contractors to develop a large-scale site of approximately 2.08 million square meters (630,000 pyeong) with 1,446 apartment units in buildings of three basement floors and 29 above-ground floors, along with various park facilities.

Hyundai Engineering and Bumyang Construction started construction and sales in January for blocks 2BL and 3BL of the three blocks (BL) in the project site. Construction and sales for the remaining 1BL apartment units are scheduled to begin in December. If the developer fails to obtain a completion permit (responsible completion) within 40 months from the PF loan execution date, the SPC will bear the repayment responsibility instead of the developer.

Gwangju Jungoe Park Development plans to use the procured funds to repay existing loans and pay construction costs. The developer had previously borrowed about 405 billion KRW from Gwangju Bank, Hana Bank, Daegu Bank, Meritz Fire & Marine Insurance, DB Insurance, and KDB Life Insurance. Part of this will be repaid, and additional project costs will be invested according to construction progress.

The IB industry evaluates that even in regional areas struggling with unsold inventory backlogs, PF funding is being secured mainly for prime projects with good business feasibility. A securities firm PF official analyzed, "The Jungoe Park development project is a mega private park special project promoted by Gwangju Metropolitan City, with excellent cultural, living, transportation, and educational infrastructure, so concerns about unsold units are relatively low."

Within Jungoe Park, there are representative cultural facilities of Gwangju such as the Biennale, National Museum, Arts Center, and Children's Grand Park. Additionally, various living infrastructures such as Shinsegae Department Store, Hyundai Hospital, and U-Square Terminal are well established nearby. An industry insider said, "Since a top-tier construction company with low PF default risk is responsible for construction, problems in PF are not expected."