Hyundai E&C plans to begin construction of the CJ site complex development project in Gayang-dong, Gangseo-gu, Seoul, by the end of this month or early next month. This marks the first ground-breaking six years after it formed a consortium with Inchang Development to acquire the CJ factory site in 2019. Hyundai E&C has made an equity investment that not only covers construction but also shares in the profit from sales, meaning the profit size that Hyundai E&C will take could vary depending on the sales performance.
The construction is expected to last for over four years, so an annual revenue increase effect of nearly 370 billion won is anticipated. However, since Hyundai E&C also provided a guarantee for the project financing (PF) loan of 1.7 trillion won, there is a possibility that contingent liabilities could materialize if sales do not go well.
According to the construction and financial investment industries on the 18th, Hyundai E&C will start construction of the CJ site complex development project in Gayang-dong by the end of this month or early next month. The CJ site development project is to develop a mixed-use complex with a total floor area of 771,586 square meters, ranging from 7 underground floors to 14 above-ground floors for cultural, shopping, and office purposes. The developer is Inchang Development, and Hyundai E&C has also made an equity investment, so it will share not only the construction costs but also part of the sales profits. The equity ratio is 60% for Hyundai E&C and 40% for Inchang Development. The total project cost is 6.1 trillion won, and Shinsegae Property is currently negotiating to establish its 'Starfield Village' in this area.
Earlier, Hyundai E&C and Inchang Development purchased the site for 1.051 trillion won at the end of 2019 and received a main PF loan of 2.8 trillion won with KB Securities as the lead manager on December 20 last year. Hyundai E&C provided a guarantee for 1.7 trillion won of the main PF loan at an interest rate in the 4% range.
The contract amount for Hyundai E&C related to this project (construction costs) is approximately 1.626 trillion 673 million won, which accounts for 5.49% of last year's sales. Since revenue recognition is divided according to the progress during the 53-month (4 years and 5 months) construction period, this means that an annual increase in revenue of about 368.3 billion won is expected. A representative from Hyundai E&C noted, "We are making efforts to improve the company's profitability through the complex development project, and since this project is the first significant complex development project this year, there is great interest in it."
However, the profit size from the sales project, in which Hyundai E&C takes 60% of the profit through equity investment, has yet to be confirmed. Hyundai E&C and Inchang Development plan to determine the sales price after considering the market trends post-construction. Since this profit is separate from construction costs, it is expected to have a significant impact on improving Hyundai E&C's financial structure depending on the success of the sales.
Jang Yoon-seok, a research analyst at Yuanta Securities Korea, stated, "Since this is a large-scale complex development project that Hyundai E&C has contracted for in the domestic market, it is likely to have a significant impact on Hyundai E&C's future financial improvements. However, since the profit size from sales is still undecided, analyzing the performance of the development project in the future may not be easy."
Jeon Ji-hoon, a research fellow at Korea Credit Rating, said, "Since this is a development project with risks of unsold properties such as knowledge industry centers and officetels, we need to closely examine this area to understand the financial impact on Hyundai E&C." This suggests that there are concerns about unsold properties, as the project involves selling more challenging non-residential units compared to APT. sales. Because Hyundai E&C provided a guarantee for 1.7 trillion won of the main PF loan, there is a possibility that contingent liabilities could materialize if unsold units prolong.