Suspicious Loans and Connections behind Development Project in Busan

It has transpired that a Busan developer Kim Sang-jin employed a series of lobbying tactics to win a development project in the city. Former presidential aide Jeong Yun-jae reportedly pulled a lot of strings for Kim.

Suspicions are popping up over the unbelievable reality. Kim’s company was a company of no substance. It was like a paper company. But the company won the multi-million dollar development project.

Kim’s Company and the Yeonsan-dong Redevelopment Project–

Kim’s company, the winning developer in the Yeonsan-dong Project, had $300,000 in capital and only four employees, according to its audit report submitted to the Financial Supervisory Commission.

And the company did not produce any income last year. It only incurred almost 800,000 dollars in financial and other expenses.

Kim is suspected to have created the paper company in April 2005 when he started “working on” the project.

A developer company may be a company with small capital. Considering the size of the project, experts explain, a company without substantial resources cannot even think about bidding for such a project.

A ballpark figure estimation projects that the project would cost at least 3.6 billion dollars. It involves construction of 1,440 units of apartments on an 87,054 m² land lot. The Yeonsan area is a famous spa town and boasts of a quality educational environment. Thus, whoever wins the bid will probably make a fortune.

However promising it may be, it is hard to understand how a paper company without many resources could cut a partnership deal with a big builder.

A source close to the builder company explains, “When the developer company contacted us, it had already purchased a significant portion of the land. We believed we would not encounter any problem.”

Suspicious Loans –

Entering into the partnership in June 2006, the builder company co-signed a loan application for Kim’s company. Kim’s company needed money to buy land and construction materials.

The developer applied for a $2.65 billion loan, which was downplayed to 1.95 billion dollars in the developer’s audit report. In other words, whereabouts of the 70 million dollars was not recorded in the books, which the builder cannot explain.

A officer of the builder says, “We don’t know how the company processed its booking. One thing I can tell for sure is we co-signed a $2.65 billion loan application.”

Experts also point to the unbelievably low interest rates applied to Kim’s company. The audit report shows two large Korean banks, KB and Woori, applied 5.55% and 5.33% interest rates to loans to Kim’s company ($1.95 billion).

Various considerations, of course, are made before lending money to a company. But the rates were “unreasonably” low, compared with the rates applied to other companies.

The two banks explain that they counted on the excellent credit of the builder, and their rates were reasonable at the time of the loans. They also argue that all their decisions were legitimate and there were no special favors involved.

koh@donga.com toto@donga.com