POSCO E&C Tower in Songdo City up for Sale
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POSCO E&C Tower in Songdo City up for Sale
POSCO Construction seeking agent for sale of head office in Songdo Int’l Business District in Incheon on condition of leaseback within year

03(Wed), Aug, 2016

President Han Chan-kun of POSCO Engineering and Construction Co.

POSCO Engineering and Construction Co. (POSCO E&C) has kicked off its plan to look for an agent to sell the POSCO E&C Tower in the Songdo International Business District in Incheon.

Investment banking sources said on July 8 that the construction affiliate of POSCO is about to send RFPs to major securities firms and accounting firms as the company plans to put the building on a public bidding this month after an assessment of its market value. The company was consulted by EY Han Young, a member firm of Earnest Young, on the sale of the tower in April.

The sale of the POSCO E&C’s head office will likely pick up speed as the company has recently obtained full ownership in the building after paying 356.6 billion won ($307.7 million) worth of asset-backed commercial papers (ABCP) in lieu of POSCO E&C Songdo International Building Inc. (PSIB), which is a special purpose vehicle (SPC) and previous owner of the Songdo property that was set up in 2008 to build POSCO E&C headquarters. Terra P&D Co. invested in 51 percent of the SPC, along with 49 percent by POSCO E&C.

An official who asked not to be unnamed also said that as POSCO E&C plans to complete the sale by the end of the year, and is expected to select a preferred bidder no later than August or early September.

But market sources said that the bidding price would be a major setback in its sale. They note that even if POSCO E&C sells the property in the form of sales and leaseback - where it leases back the asset from the purchaser, guaranteeing rent - the expensive price tag of over 10 million won per 3.3 square meters that POSCO E&C is said to be hoping to receive could scare off potential buyers. Market participants said it is appropriate to set the price in the 8 million won per 3.3 square meters range or 360 billion won in total.

Market insiders note that key to the success of the sale is whether POSCO E&C is willing to lower the price. An office building in Pangyo, a new bustling tech valley in Gyeonggi Province with a lower vacancy rate than those in Songdo, was sold for a maximum of 10 million won per 3.3 square meters. Some people think POSCO E&C is eager to secure funds and may willingly agree to narrow the price gap to expedite a sale of the property.

POSCO, the nation’s leading steelmaker, said in June 3, 2015, it inked a deal to sell a stake in its construction arm to Saudi Arabia’s sovereign wealth fund.

The company said it sold a 38 percent stake in Posco Engineering and Construction (E&C) to Saudi Arabia’s Public Investment Fund (PIF) for 1.24 trillion won ($1.08 billion). The deal was finalized at the headquarters of Posco E&C in Songdo, Incheon, by POSCO Chairman Kwon Oh-joon and PIF Secretary General Abdulrahman Almofadhi.

It includes a 25 percent stake already owned by the steelmaker in the construction arm and a 13 percent stake coming from an issuance of new shares by POSCO E&C.

The two sides also planned to establish a joint venture for a series of infrastructure projects including a railway, hotel and other construction projects undertaken by the Saudi Arabian government, which has been trying to foster local manufacturing industries, including a car business, in response to recent changes in the world energy market.

The nine-month negotiation was supported by President Park Geun-hye, who talked up the deal when she visited Saudi Arabia in March.

Established in 2008, PIF’s estimated total assets are about $300 billion and it has been investing in manufacturing industries under the guidance of Saudi Arabia’s finance department.

A view of POSCO E&C Tower in Songdo International Business District in Incheon.(Photos: POSCO E&C)

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