Opposition Raises Allegations of Power Abuse by POSCO E&C...Company Says "We Only Tried to Save, Not Abuse Power" [2024 National Audit]

7th Ministry of Land, Infrastructure and Transport National Audit
Conflict Between Developer and Logistics Center PF

[Image source=Yonhap News]

Jeon Jung-seon, CEO of POSCO E&C, appeared as a witness at the National Assembly audit due to conflicts with the developer over the logistics center project financing (PF).

At the National Assembly Land, Infrastructure and Transport Committee audit targeting the Ministry of Land, Infrastructure and Transport held at the Government Complex Sejong on the 7th, the opposition party raised suspicions toward POSCO E&C, asking, "Did the large corporation seize management rights?" In response, CEO Jeon said, "It is excessive to describe the collaborative work we carried out as a seizure."

The reason CEO Jeon was summoned as a witness stemmed from conflicts between POSCO E&C and the developer RNR Logistics regarding the fulfillment of the PF agreement for the logistics center located in Pyeongtaek, Gyeonggi Province. POSCO E&C won the contract for the construction in 2021 for 138.6 billion KRW. The originally scheduled completion date was March 2023, but the construction was delayed by about a year for various reasons. As RNR Logistics faced difficulties in repaying debt due to the delay, POSCO E&C filed a petition for permission to convene an extraordinary shareholders' meeting of RNR Logistics at the Seoul Central District Court in March. This was to secure stock ownership based on the 125 billion KRW of PF debt that POSCO E&C repaid on behalf of RNR Logistics.

The developer argued that the debt default was due to the extension of the construction period. Lee Heon-seok, CEO of RNR Logistics, who appeared as a reference witness, said, "The construction was simply too late. It was supposed to be completed by the end of August last year (the second delayed completion date), but it was only finished in February this year," adding, "There was only one month left until the loan maturity, and due to multiple delays, we could not secure sales or collateral loans."

Jeon Jung-seon, CEO of POSCO, responded, "This is a misunderstanding. The developer claims that the entire failure is due to the one-year delay in the logistics center completion and blames the contractor, but we have a different opinion," and added, "In PF projects, it is quite common for the contractor to make substitute payments when the developer cannot repay the loan."

Moon Jin-seok, a member of the Land, Infrastructure and Transport Committee from the Democratic Party of Korea, said, "Whether intentional or not, POSCO E&C extended the Pyeongtaek logistics center construction period seven times," and added, "The developer should have repaid the financial costs by selling units if the construction was completed on time, but when the developer was unable to repay, POSCO made substitute payments and took the shares. Is this a case of a large corporation taking over a financially weaker developer?"

Assemblyman Min Hong-chul criticized POSCO E&C for valuing the developer's shares at zero, saying, "There must be intangible value," and called it "unfair." Assemblyman Jeon Yong-gi pointed out, "The scheduled completion date changed five times, and it seems POSCO E&C tried to seize management rights."

In response, CEO Jeon said, "The reason for the substitute payment and refinancing in March 2023 was that if the developer failed to repay the loan at that time, it would immediately default," and explained, "If the developer defaults, the project rights of this logistics center would all transfer to the creditors and banks." He added, "We collaborated to save and carry on the project, so describing it as a seizure is excessive."

Park Sang-woo, Minister of Land, Infrastructure and Transport, stated, "According to the Construction Industry Act, a Construction Dispute Mediation Committee is held, but if the parties refuse, it is difficult for it to function," and added, "We will ensure that the parties can undergo dispute mediation."