[Exclusive] Shinsegae Faces 'Obstacle' in 4.5 Trillion Won Hwaseong Theme Park Groundbreaking Delay Compensation

Water Resources Corporation Decides to Impose Compensation for Construction Delay
Shinsegae "Cannot Accept" Effectively Refuses Payment
Contract Termination if Compensation Not Paid... Facing Reconsideration from Square One

Shinsegae Group's Gyeonggi Hwaseong International Theme Park complex development project, with an investment of over 4.5 trillion won, is at a crossroads of collapse. The implementing agency, Korea Water Resources Corporation (K-water), decided to impose a compensation fee exceeding 15 million won per day for the delayed groundbreaking. Shinsegae has refused to acknowledge the compensation and is holding firm. K-water has stated that if the compensation is not paid, it will terminate the Hwaseong theme park development contract, raising the possibility that the project may return to square one.

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@

According to a comprehensive report by Asia Economy on the 3rd, K-water recently decided to notify Shinsegae of the imposition of a development delay compensation fee due to the delayed groundbreaking of the Hwaseong theme park development project. The compensation fee is 15.5 million won per day, estimated to reach 5.66 billion won annually. So far, Shinsegae has tried to explain the reasons for the delay through negotiations with K-water to withhold the compensation, but it is reported that these explanations were not accepted.

According to the public offering guidelines obtained through an information disclosure request, the consortium of Shinsegae Property and Shinsegae Construction, affiliates of E-Mart, must begin groundbreaking on the main-use facilities (tourism, leisure, and entertainment district, 923,964㎡) within three years from the land contract signing date for the Hwaseong Theme Park tourism leisure land (2,789,540㎡) on March 18, 2021, and complete all construction within five years from the groundbreaking date. Furthermore, if the developer fails to commence construction within this period, they must compensate for the development delay by paying 5% per annum of the land sale price for the main-use facilities (appraised value of 113.2 billion won) multiplied by the number of days delayed.

According to the public offering guidelines, construction on the main-use facilities should have started by March 18 of this year at the latest. However, the site has yet to break ground due to delays in permits such as the designation of the tourism complex.

Compensation for Groundbreaking Delay Could Reach 10 Billion Won

The delay in permits occurred after the Board of Audit and Inspection launched an audit amid suspicions that Shinsegae purchased the project land from K-water at a low price. The Board of Audit and Inspection conducted an audit on K-water starting in October 2021 and uncovered that Shinsegae was sold the project land based on an appraised value nearly half of the actual worth, setting the sale price at 325.6 billion won (refer to our March 8, 2024 report <[Exclusive] K-water Sells Hwaseong Theme Park Project Land to Shinsegae at Low Price>). At that time, the Board judged that K-water violated the public offering guidelines and gave preferential treatment to Shinsegae, resulting in disciplinary actions such as suspension for three K-water employees.

Currently, Hwaseong City has submitted an application for designation as a tourism complex to Gyeonggi Province, and the review process is underway. Completing all administrative procedures is expected to take at least one year. Even if groundbreaking begins in the second half of next year as planned by Shinsegae, the compensation fee could reach up to 10 billion won.

Shinsegae "Cannot Acknowledge Compensation" VS K-water "Contract Termination if Public Offering Guidelines Violated"

However, Shinsegae does not acknowledge this compensation. They argue that the Hwaseong theme park development project is proceeding smoothly under a separate business agreement with K-water, so the delay is not due to a failure to commence construction. It is believed that Shinsegae actively persuaded that the delay was caused by the prolonged audit by the Board of Audit and Inspection.

On the other hand, K-water plans to terminate the land sale contract if Shinsegae does not pay the compensation, according to the public offering guidelines. Article 45, Paragraph 2, Item 4 of the guidelines stipulates that if compensation is not paid, the land sale contract may be canceled. If the contract is terminated, the deposit of 32.56 billion won, which is 10% of the land sale price for the tourism leisure land, will be forfeited to K-water as a penalty, and the business agreement between the two companies will be automatically canceled (as specified in Article 36 of the guidelines). A K-water official stated, "We will follow the public offering guidelines."

However, industry insiders predict that the possibility of the project collapsing due to Shinsegae refusing to pay the compensation is low. Shinsegae is fully committed to the Hwaseong theme park development project, which involves a project cost of 4.6 trillion won. The developers, Shinsegae Property and Shinsegae Construction, established a joint venture called Shinsegae Hwaseong in September 2020 and have injected 198.5 billion won through seven rounds of paid-in capital increases from December 2020 to March this year.

Shinsegae Construction's liquidity crisis is also a factor making the Hwaseong theme park project necessary. Due to the construction industry downturn after COVID-19 and an increase in unsold inventory, liquidity has worsened this year, making securing funds through new project orders urgent.

Shinsegae's core retail business is also suffering from sluggish offline sales, and its e-commerce affiliates are failing to generate profits amid competition with platform companies like Coupang and Naver, making business diversification inevitable.

Above all, Shinsegae cannot abandon the project because it acquired the Hwaseong theme park development land at about half the price through an appraisal that did not reflect development gains. Hwaseong City is a region where housing prices have surged recently due to development benefits such as the metropolitan wide-area express train (GTX). According to statistics released by the real estate platform Zigbang in April, Hwaseong's housing prices rose 8% over the past year, the second-largest increase in the metropolitan area after Gwacheon. A Shinsegae official said, "(Since it is not a groundbreaking delay) we cannot acknowledge the compensation" and added, "We will continue negotiations with K-water."