Gyeonggi Province Public Corporation Faces Imminent Financial Crisis Over Risky Moves

New city development projects, including Dongtan 2 New City, being led by Gyeonggi Housing & City Development Corporation as the implementing agency are facing an urgent fund procurement crisis following the government's plan to reduce the debt issuance limit for local public enterprises.

According to materials released by the corporation on the 26th, the Ministry of the Interior and Safety plans to reduce the local public bond issuance limit from the current 10 times net assets to 4 times in order to improve the financial soundness of local public enterprises. The ministry has prepared internal guidelines for changing the local public bond standards, and plans to apply the new standards from next year after completing the process of collecting opinions from local governments.

Under these circumstances, the corporation would inevitably face a "financial crisis" once the new standards take effect, given its current debt-to-asset ratio of 499%. As of June this year, the corporation's net assets stand at 981.5 billion won, giving it a bond issuance limit of only 3.926 trillion won. With existing debt of 4.899 trillion won and investments of 5 trillion won earmarked for Gwanggyo New City and Gimpo Yangsong Industrial Complex development, the situation is dire.

Furthermore, the corporation must invest a total project cost of 17.781 trillion won across 45 ongoing projects. Going forward, bond issuance for 2.94 trillion won in compensation costs for developing Hwaseong's Dongtan 2 New City and Pyeongtaek Goduk International New City will also face restrictions.

As the corporation predicts that securing project funds will become difficult for both existing and new projects, it has requested assistance from the province and the Ministry of the Interior and Safety for fund procurement. The corporation has recommended to the ministry that it maintain the current bond issuance limit and approve bond issuance under the previous standards for development project areas that have already had their development plans approved.

Additionally, it has requested that the province increase capital by 100 billion won annually until 2012, totaling 400 billion won. The corporation estimates that when net assets reach 1.197 trillion won next year, the debt ratio will reach a peak of 752% (9.03 trillion won), but can be lowered to 621% with an additional 100 billion won capital increase.

A corporation official stated, "We are demanding that our recommendations to the ministry be accepted, and we will work closely with the province to explore various measures to ensure there are no disruptions to new city development projects."