Macquarie will withdraw business from the Line No. 9 Subway in Seoul

 

Macquarie, which is the largest shareholder in Seoul Metro Line 9 Corporation, is predicted to withdraw its business in the wake of the controversies surrounding excessive charge hikes. Under the circumstances, keen attention is being paid to what impact this will have on Seoul City’s private-sector investment projects.

According to news sources, the insurers to be the new stockholders in the corporation have accepted the demands of Seoul City, including the abolition of minimum traffic receipts and the determination of the fare by the city, which means Seoul City is going to have the business rights for the subway. Experts are saying that the city government could use its dominant position to make heavy weather for private-sector projects down the road.

At present, it is expected that two asset management firms will purchase the shares of the Macquarie and Hyundai Rotem Consortium, while three insurance companies will run the capital. This marks the first case in which a private investor has withdrawn from a private capital project run by Seoul City. The insurers are said to have invested 600 billion to 700 billion won each, and the loss coverage ratio is predicted to be decreased from 8.9% to below 5% a year. The city is planning to make a report to the municipal council and approve of the shareholder change before the end of next month, once the negotiations between Macquarie and the new investors are wrapped up.

In the meantime, the change of shareholders according to the new concession agreement, which reflects more of the demands of the city for the sake of public interest, is likely to have a significant impact on the future of private-sector investment projects underway in Seoul.

One example is the light rail transit project announced last month in which private capital is scheduled to account for 46.2% of the investment. Seoul City is planning to obtain the rights to fix fares and reduce the loss coverage ratio while negotiating with private project managers. In this case, they may refrain from joining the project due to the huge size of initial investment. Besides, the break-even point is forecast to be reached in approximately 20 years.

“We are currently participating in the talks but will proceed with the negotiations only when the city promises to cover the loss during the early phase,” said a company. In response, the municipal government explained, “The change is to draw a new picture for future projects, not to repeat the mistakes made by Seoul Metro Line 9 Corporation.”

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution