Seoul City Adjusts Project Profit Rate for Line 9 Private Investors Following Interest Rate Cut... Budget Savings

Promoting 'Refinancing' Through Consultation with Investors and Related Organizations
Approximately 40 Billion KRW Reduction by 2038 with 1%p Interest Rate Cut

Subway Line 9 Additional Train Formation Vehicles

[Asia Economy Reporter Jo In-kyung] Seoul City announced on the 14th that it will pursue refinancing to adjust the private investor project rate of return (guaranteed interest rate) for Phase 1 of Subway Line 9 (Gaehwa Station to Sinnonhyeon Station).

Refinancing refers to changing the equity stake, capital structure, and third-party capital procurement conditions of investors, unlike the existing implementation agreement.

With the recent five-year trend of low interest rates, the plan is to reasonably lower the project rate of return reflecting the decreased market interest rates and significantly reduce the city budget allocated for financial support.

The Phase 1 section of Subway Line 9 was constructed and is operated as a private investment project. In 2013, during project restructuring, Seoul City agreed on a project rate of return of 4.86% for investors' principal of 746.4 billion KRW, based on the Bank of Korea's benchmark interest rate at the time (2.5%).

However, this year, the Bank of Korea's benchmark interest rate is 0.5%, which is 2.0 percentage points lower than in 2013, while the project rate of return is 3.98%, showing a slower decrease than the benchmark rate. Therefore, the intention is to reflect the decrease in the benchmark interest rate and adjust the project rate of return to a more realistic level.

According to a feasibility study on refinancing conducted by a professional accounting firm commissioned by the city, if the project rate of return is lowered by 1 percentage point, the Seoul City budget could be reduced by approximately 40 billion KRW by 2038, and by about 60 billion KRW if lowered by 1.5 percentage points.

Considering the recent low interest rate trend, the procurement interest rate on investors' principal is also expected to have significantly decreased compared to the 2013 project restructuring, so Seoul City believes there is sufficient room for reduction.

Accordingly, Seoul City will pursue refinancing to lower the project rate of return based on the 'Amended Implementation Agreement' and the 'Private Investment Project Basic Plan 2020' signed with investors and related organizations in 2013. The plan is to complete refinancing by the end of March next year through consultations with Line 9 investors, KDI, the Ministry of Strategy and Finance, and other related agencies.

Hwang Bo-yeon, Director of Urban Transportation at Seoul City, said, "We will promptly proceed with refinancing for Line 9 to reduce the city budget," adding, "Since Line 9 is a representative success case of project restructuring, we will ensure this refinancing becomes a model case as well."

This content was produced with the assistance of AI translation services.