Hyundai-Led Group to Buy Gangnam Site for $10 Billion

By Rose Kim, Seonjin Cha and Heesu Lee

Hyundai Motor Co. (005380), South Korea’s largest carmaker, led a group that outbid Samsung Electronics Co. (005930) for real estate in Seoul with a 10.6 trillion won ($10 billion) offer that was triple the property’s assessed value. Hyundai’s shares fell the most in more than three years.
The group, which includes affiliates Kia Motors Corp. (000270) and Hyundai Mobis Co. (012330), won the bid for the 79,342-square-meter site in the heart of the capital’s Gangnam district, the seller, Korea Electric Power Corp. (015760), said today in a statement. Kepco, as the utility is known, auctioned the site of its headquarters ahead of relocating to the south of the country as part of a government regional development plan.
The group’s offer exceeds Hyundai Motor’s entire 2013 earnings as it pursues a plan to build a global business center at the site. Kepco surged to a seven-year high. The bid was more than three times the 3.33 trillion won that the company said the property was appraised at.
“It will be an unprecedented commercial site deal in Korea,” Lim Hyun Moon, head of real estate at Shinhan Bank in Seoul, said by phone after the
deal was announced. “The price looks a bit high considering its appraisal price. It remains to be seen how Hyundai will justify its offer.”

Photographer: SeongJoon Cho/Bloomberg

Chung Mong Koo, chairman of Hyundai Motor Group

Hyundai tumbled 9.2 percent, the most since August 2011. Kia slumped 7.8 percent in Seoul, while Mobis declined 7.9 percent. Kepco climbed 5.8 percent to 46,400 won, its highest close since July 2007.

‘Yolk of Gangnam’

Hyundai Motor Group, headed by Chairman Chung Mong Koo, has said its plans for the site, dubbed the “yolk of Gangnam” by local media including Yonhap News, include a hotel, convention center and auto theme park as well as its own headquarters. Kepco announced in July that it plans to sell the property before relocating to South Jeolla province in November.
Kepco’s main concern in the auction process was avoiding accusations of favoritism and the underpricing of an asset, the state-owned utility said in today’s statement. The company said last year it plans to sell real estate to reduce debt, while the government in February called on 18 public companies including Kepco to cut 39.5 trillion won of debt by 2017.
“This looks like the largest ever land transaction deal in Korea,” JoAnn Hong, Seoul-based director at Savills Plc, said by phone. “The price tag for the land looks a bit high for now, but it all depends on how Hyundai will develop it and create value there,” Hong said, adding that office demand among Hyundai affiliates would more than fill even a 100-floor skyscraper at the site.
Hyundai Motor Group is planning to move 30 of its affiliates to the new site, the group said in a statement.
“The development of the area into a convention, office and shopping complex will create a landmark in Seoul,” she said.
Record Deal?
South Korea’s Ministry of Land, Infrastructure and Transport said it’s still checking to see if the transaction is the country’s record property deal. Thirteen bidders made offers for the site, though only the Hyundai-led group’s and Samsung bids met the qualifying level, Kepco said today.
Samsung’s offer was in the low-to-mid 5 trillion won range, the Kyunghyang Shinmun newspaper reported on its website, without citing anyone. Samsung had no comment on its bid, the company said in an e-mail.
The area near the Kepco site is rapidly developing. Adjacent is the COEX Mall, described by the country’s tourism board as Asia’s largest underground shopping center. To the east, Lotte Group is spending 3.5 trillion won to develop a 123-story building, hotel and shopping mall complex. The tower, which will be the capital’s tallest, is scheduled to be finished by the end of 2016, while the mall is awaiting Seoul government approval to open, according to the group.

Leaving the City

Kepco is vacating the site of its headquarters as part of South Korea’s plan to move public agencies out of Seoul to facilitate regional economic growth and reduce the concentration of resources in the capital.
The policy, approved by former President Roh Moo Hyun, includes the $20 billion development of Sejong, south of the capital, to house government ministries and almost 14,000 civil servants by 2015 - the biggest relocation of public workers since North Korean troops forced the government to flee Seoul at the onset of the 1950-53 Korean War.
Kepco’s new home forms part of a new hub for South Korea’s energy industry in Naju, about 280 kilometers (170 miles) south of the capital. Fifteen other public companies will move in the seven-year project, according to the local government.
“As the nation’s biggest state-owned company, we will try our best to seek balanced development among regions and make Naju the leading energy valley,” Kepco Chief Executive Officer Cho Hwan Eik said in an e-mailed statement on June 26.