Korean Banks Give Giant Project a Lift
SEOUL -- A closely watched South Korean real-estate-development project controlled by a U.S. firm took a big step forward yesterday when a group of 13 South Korean banks agreed to provide $2.7 billion in loans.
The project, a city-within-a-city under construction near the international airport in suburban Seoul, is South Korea's largest real-estate development ever and one of the largest in the world at the moment.
But the development partnership, 70%-owned by Gale International, a New York-based real-estate developer, has been under close scrutiny by local firms, which are sensitive about foreign companies entering a market that has previously seen little international competition. Posco Engineering & Construction Co., a Korean construction company, owns the other 30%.
Proceeds from the new round of financing will be used to purchase 120 hectares from the city of Incheon for latter phases of the project, Gale said in a statement. A portion will be used to consolidate and repay prior financing.
Gale and Posco E&C previously raised $1.5 billion from a smaller group of South Korean banks and $350 million from an investment by Morgan Stanley.
The project, called Songdo City, was conceived by the South Korean government more than a decade ago as an addition to the then-new international airport in the coastal city of Incheon. Construction on Songdo began in May 2005 on 600 hectares of reclaimed land. Today, the developers have 45 projects under construction, including a 65-story office building, a convention center, an international school, homes, a park and a golf course.
At the same time, the government is building an 11-kilometer-long bridge from Songdo to the airport. Since the city of Incheon put Gale and Posco in charge of the development in 2001, the project has occasionally drawn criticism from South Korean developers because it is the first one in the country to be controlled by a foreign real-estate firm.
With the new round of financing, a greater number of South Korean lenders have a stake in the project and stand to benefit from it. Shinhan Bank, a unit of Shinhan Financial Group Co., led the consortium that is providing the new financing to the Gale-Posco partnership. Shinhan is providing $1.7 billion of the funding itself. Other members of the consortium are several large and midsize Korean banks as well as life-insurance companies.
Some of the first buildings in Songdo will be completed next year, though most of those now under construction will be finished in 2009. When the entire project is finished by the middle of the next decade, Songdo will have nine million square meters of property, enough for the homes and offices of 65,000 people. Songdo's office space alone will total more than 4.5 million square meters.
Last month, the developers moved up their schedule for five of the project's office towers in the hopes that getting them under construction would help leasing prospects. Gale and Posco will use the proceeds from five housing towers to finance the simultaneous construction of five commercial towers. The commercial towers, which were to have been completed in 2014, will be done in 2011 instead.
The city of Incheon earlier this year approved another planned development, of 600 hectares, to be led by Portman Holdings LLC of the U.S. and two South Korean construction companies, Samsung Corp. and Hyundai Engineering & Construction Co. City officials envision building a 151-story office tower in that development by 2013.
Write to Evan Ramstad at evan.ramstad@wsj.com