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Photo courtesy of Meritz Financial Group |
[Alpha Biz= Paul Lee] Meritz Financial Group has reportedly informed counterparties that it will not proceed with the acquisition of KRW 480 billion worth of senior debt related to the IOTA Seoul office project, according to sources on the 26th. The decision raises concerns that a project granted regulatory incentives under Seoul’s high-density urban redevelopment policy could face the risk of a distressed sale.
Multiple investment banking sources said IGIS Asset Management had sought to refinance and extend the maturity of a KRW 717 billion bridge loan by consolidating the KRW 480 billion senior tranche with Meritz Financial Group as the sole lender. However, Meritz recently conveyed its reluctance to participate. The two sides are now renegotiating terms, with a final decision expected later this week.
Meritz had been viewed as the key institutional investor capable of taking over the senior debt in the transaction. Despite floor-area-ratio incentives exceeding 1,100%, the group is said to have been unconvinced about the project’s profitability after factoring in interest costs and overall financial risks.
The total bridge loan amounts to KRW 717 billion, comprising a KRW 480 billion senior tranche (Tranche A), a KRW 140 billion mezzanine tranche (Tranche B), and a KRW 97 billion junior tranche (Tranche C). Interest rates are understood to be in the range of 7–8% annually.
At an assumed interest rate of 8%, annual interest expenses on the bridge loan would total roughly KRW 57 billion. If Meritz were to acquire the senior tranche, it would be entitled to approximately KRW 38.4 billion in senior interest payments each year. However, market participants note that if the project fails to gain sufficient traction, both principal and interest could be at risk of non-recovery.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
