[10 Years of Urban Logistics Stalemate]⑥Land Value Quadrupled... Where Are the Development Profits Going?

Approval Delay Due to Concerns Over Preferential Treatment in Yangjae Logistics Complex

Half of Development Profits Expected to Go to the Owner Family

Harim Second-Generation Successor Expands Holdings in the Holding Company

1.6275 trillion won.

This is the appraised value as of last year for the land involved in the 'Yangjae High-Tech Urban Logistics Complex (Yangjae Logistics Complex)' development project, which Harim Group is pursuing in the 225 Yangjae-dong area of Seoul. This amount is nearly four times higher than the 452.5 billion won purchase price paid by Harim in May 2016. Disputes over permits and approvals for developing the last prime site in Seoul have continued for a decade, fueled by policy misalignment between central and local governments and the risk of massive development profits being labeled as preferential treatment. There are growing calls for institutional mechanisms to ensure fair distribution of public development gains.

According to the Financial Supervisory Service's Electronic Disclosure System on May 12, it has been revealed that Korea Biotech, a subsidiary of Allpum—a private company wholly owned by Kim Junyoung, the eldest son of Harim Group Chairman Kim Hongkuk—has been continuously acquiring shares of Harim Holdings.

Harim Chairman's Eldest Son Increases Holdings in Parent Company Ahead of Yangjae Logistics Complex Approvals

Since November last year through last month, Korea Biotech purchased Harim Holdings shares on the market for about four months. During this period, the company acquired a total of 2,033,700 shares, investing approximately 20.6 billion won and increasing its stake by 1.8 percentage points. As of the end of September last year, Korea Biotech's stake in Harim Holdings stood at 16.69%, which has now risen to about 18.5%. The company has also announced its plan to buy an additional 226,300 shares between May and June. If this plan is executed, its stake is expected to rise to around 18.7%.

The core axis of Harim Group's control currently lies with Allpum, which is 100% owned by Executive Director Kim Junyoung. Allpum fully owns Korea Biotech and Eco Capital as subsidiaries, and through these entities, it secures its stake in Harim Holdings. Notably, Korea Biotech is the second-largest shareholder of Harim Holdings.

Some analysts see these share purchases as part of the succession process for the second generation of ownership. The combined stakes of Allpum (5.78%), Korea Biotech (18.51%), and Eco Capital (0.24%) total 24.53%, surpassing the 21.10% held by Chairman Kim Hongkuk. While Chairman Kim is technically the largest shareholder, it is now being assessed that real management control has shifted to Executive Director Kim Junyoung.

This succession process began in 2012, when Chairman Kim Hongkuk transferred shares of Korea Sumbet Sales (now Allpum), then an unlisted company, to his eldest son. The value of Allpum later increased through transactions with group affiliates.

Core Assets Consolidated Under Holdings Company... The Background of Business Restructuring

Harim Group kicked off full-fledged restructuring of its affiliates in 2018. At that time, Jeil Holdings and Harim Holdings were merged to establish Harim Holdings as a single holding entity. Subsequently, NS Shopping was incorporated as a wholly owned subsidiary through a comprehensive stock swap and subsequently delisted. NS Shopping, through its subsidiary Enbycon, purchased the land for the Yangjae Logistics Complex development. NS Shopping was then split into investment and business divisions, with the investment division merged into the holding company. In this process, Harim Industry, which owns the Yangjae-dong land, was incorporated as a subsidiary of the holding company. By moving key assets of the group into the holding company, any future profits generated will be reflected in the holding company, where the owner family holds more than half of the shares.

As a result, existing investors strongly objected. NS Shopping, which invested more than 600 billion won in the Yangjae-dong project, was effectively excluded from development profits after the restructuring. There were also concerns in the market about shareholder value being damaged during the restructuring process. Internal voices at NS Shopping expressed dissatisfaction that "profits generated from the core business were used for other business ventures." This subsequently led to measures such as the suspension of performance bonuses and other austerity management steps.

During this process, there were continued allegations of unfair internal transactions. The Fair Trade Commission launched an ex officio investigation into Harim Group in 2017 and concluded that affiliates had provided undue benefits to Allpum through related-party transactions. Specifically, feed affiliates purchased raw materials through Allpum rather than existing supply chains, thereby guaranteeing Allpum intermediary margins. In 2021, the Fair Trade Commission imposed a total fine of 4.8 billion won on Harim Holdings, its affiliates, and Allpum.

6.8 Trillion Won Project Cost... 3.8 Trillion Won in Expected Sales Profits

The Yangjae Logistics Complex development project is expected to generate significant profits from sales and leasing in the future. According to the project plan revision submitted by Harim Industry to the Seoul Metropolitan Government last year, the total investment in the project is estimated at 6.8712 trillion won. Of this, 1.6 trillion won is allocated for land acquisition and compensation, and 4.2581 trillion won for development costs. The remainder is for land charges and infrastructure installation costs.

Harim plans to finance the project with 3.86 trillion won in sales revenue, 650 billion won in loans from financial institutions, and 2.3518 trillion won in equity capital. However, industry experts expect the revenue from residential sales and commercial facilities to increase further.

With the rising land value, the public contribution required for the Yangjae Logistics Complex has also surged to 460.8 billion won. However, given the anticipated profits after project completion, regulatory authorities are expected to maintain a conservative stance regarding approvals.

To address this, the Ministry of Land, Infrastructure and Transport distributed a 'Public Contribution Guideline' to all local governments nationwide last year, setting the maximum burden for public contributions at no more than 70% of the increase in land value. The guideline applies to cases where, due to designation as a district unit planning zone or spatial innovation zone, building usage and construction restrictions (such as building coverage ratio and floor area ratio) are relaxed. However, the Yangjae Logistics Complex was not included in this round of guidelines. A representative of the project developer stated, "Since large-scale development projects are constantly mired in debates over preferential treatment in permits and approvals, establishing a clear system for public contributions in line with the purpose of public development will help reduce project risks."

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