Magok Le West Development Project 1.4 Trillion Won Main PF Formation
Busan Hanjin Container Yard Project Also 1 Trillion Won PF
Lotte Construction Strengthens Alliance After 1.5 Trillion Won Fund Formation for Normalization
High Possibility of Cooperation in Other Large Projects
The joint development project between Lotte Construction and Meritz Securities continues. Meritz Securities has been consecutively selected as the PF lead manager for large-scale development projects in Seoul and regional centers promoted by Lotte Construction. When Lotte Construction faced a liquidity crisis due to concerns over PF insolvency, Meritz Securities supported Lotte Construction with a 1.5 trillion KRW fund for project sites, which is interpreted as having strengthened the PF business relationship between the two companies.
According to the investment banking (IB) industry on the 10th, Magok MICE PFV (Project Finance Investment Company) has completed the main PF (construction and project funds) financing of about 1.3 trillion KRW for the Seoul Magok development project, with Meritz Securities and others as lead managers. The main lenders included securities firms such as Meritz Securities, Korea Investment & Securities, KB Securities, Samsung Securities, Hana Securities, and Yuanta Securities.
Magok MICE PFV is a special purpose company established for the Magok Urban Development Project area special planning zone CP1 (Le West City Tower), CP2 (Le West Lotte Castle), and CP3 (VL Le West) blocks in Magok-dong, Gangseo-gu, Seoul. Lotte Construction and the solar energy company Top Solar hold 100% of the common stock shares. Kumho Industrial, Dawon Design, Daejeo Construction, Meritz Securities, Hi Investment & Securities, and Koramco Asset Management invested in preferred dividend stocks and other types of shares.
PF loans were divided by development project blocks. 830 billion KRW will be used for construction costs of Magok CP1 block, and 430 billion KRW will be used for part of CP2 and CP3 block project costs. For the CP1 block PF, investors were recruited by dividing into senior 500 billion KRW and subordinated 330 billion KRW according to collateral and repayment priority. CP2 and CP3 raised investment funds divided into senior 300 billion KRW, mezzanine 123 billion KRW, and subordinated 50 billion KRW. The maturity of PF loans is October next year and March 2026, respectively.
Lotte Construction, the contractor, provided a completion guarantee agreement for the PF loan. If completion and use approval are not obtained by October next year, it agreed to assume the developer's debt and take final repayment responsibility. An IB industry official said, "Since the core land in Magok is secured as collateral and a top-tier construction company provides a completion guarantee agreement, the project risk is relatively low," adding, "The sales situation of newly built housing in Magok is also favorable, so there was no difficulty in recruiting the main lenders."
Recently, Lotte Construction also used Meritz Securities as the PF lead manager while raising 1 trillion KRW of main PF for the ultra-high-rise landmark complex development project in Haeundae, Busan. This project involves constructing 2,076 households in six buildings with a total floor area of 638,523 square meters, ranging from six basement floors to a maximum of 67 floors above ground, on the former Hanjin container yard (CY) site of 46,464 square meters in Jaesong-dong 856-1, Haeundae-gu. Since 2017, Lotte Construction has provided credit enhancement such as joint guarantees for bridge loans (land-secured loans) as the developer.
The alliance between Lotte Construction and Meritz Securities has strengthened since Meritz Securities created a 1.5 trillion KRW fund to urgently support Lotte Construction's liquidity. When no one was willing to provide funding due to concerns over PF project defaults (EOD), Meritz Securities extended a helping hand, enabling the normalization of Lotte Construction's PF projects. The maturity extension of the bridge loan guaranteed by Lotte Construction was possible, and it played a role as a catalyst in securing 2.4 trillion KRW in funding from banks afterward. Recently, Lotte Construction also signed an additional 500 billion KRW financial support agreement with Meritz Securities.
Going forward, Lotte Construction is expected to continue appointing Meritz Securities as the lead manager during the main PF conversion process of major development projects. An industry insider said, "Lotte Construction, led by Vice Chairman Park Hyun-chul, is accelerating the normalization of PF projects," and added, "Meritz Securities is expected to continue securing lead manager contracts for high-quality PF projects with good business prospects as compensation for bearing the PF risks of Lotte Construction during its restructuring process."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
