The biggest project in Korea to date developed under a build-transfer-lease (BTL) contract, the W1.652 trillion ($1.47 billion) rail project bet­ween Sosa and Wonsi reached financial close on 27 December 2010.

The BTL contract is with special purpose concession­aire E-Rail, under a 20-year concession awarded by the Ministry of Land & Maritime Affairs. Sosa-Wonsi is the biggest infrastructure project in Korea since the start of the financial crisis in 2008 and the first Korean project deal to combine an ancillary real estate development – residential and retail complexes in the vicinity of the railway stations – with an infra­structure project, thus topping up passenger and freight cashflows with rents.

Lead sponsored by Daewoo Engineering & Construction, the 23.4km double-track project will serve both metro and freight traffic and is part of a system that will provide a northern transport semi-circle around Seoul to complement a similar southern link.

The project is a key part of Korea’s plan to reduce travel times between Seoul and 95% of the country to less than two hours by 2020. As a consequence, Sosa-Wonsi and other parts of the overall project are to be upgraded to 230km/h lines.

Macquarie Capital Advisers is financial adviser to the sponsor group, which, in addition to Daewoo, includes Bando Engineer­ing & Construction, Doohan Engineering & Construction, KB Sosa-Wonsi Rail Project Trust Fund, KCC Engineering, Sampyo, TaeYoung and Wonha Construction.

The financing comprises W152.5 billion of equity and W1.541 trillion of debt. The debt is split between W1.435 trillion of senior debt, a W106.8 billion subordinated tranche, a 20-year W40 billion stand­by facility with a bullet repayment, and a W70 billion loan to the real estate ancillary business associated with the SPV. Financing for the ancillary business was sole arranged and provided by Korea De­vel­opment Bank. (KDB) as a five-year bullet.

The 25-year senior loan comes from National Pension Ser­vice of Korea (W600 billion), Korea Life Insurance (W335 bil­lion), Kyobo Life Insurance (W300 billion), Korea Finance Corporation (W200 billion) and Korea De­velopment Bank on a club basis. KDB also provided the 20-year W40 billion standby facility.

The margin on the senior loan is 118bp over five-year Korea Treasury Bonds (KTB). The margin on the 25-year subordinated debt is fixed at 850bp per year. And the margin on the ancillary loan is 118bp over one-year KTB. KB Sosa-Wonsi Trust Fund contributed 90% of total equity and provided 100% of the subordinated debt in the project.

The project had a difficult ride from award to signing. Daewoo was appointed preferred bidder in 2008 and construction was originally scheduled to begin in 2009. The scheme was then put on hold because investors were reluctant to commit. Following signing, construction is expected to start this year. The contrac­tor has seven years for the design and build phase. 

Sosa-Wonsi
Status: Signed 27 December 2010
Size: W1.652 trillion
Location: Korea
Description: 23.4km double-track metro and freight project
Sponsors: Daewoo Engineering & Construction, Bando Engineering & Construction, Doohan Engineering & Construction, KB Sosa-Wonsi Rail Project Trust Fund, KCC Engineering, Sampyo, TaeYoung, Wonha Construction
Financial adviser: Macquarie Capital Advisers
Lead arrangers: National Pension Service of Korea, Korea Life Insurance, Kyobo Life Insurance, Korea Finance Corporation, Korea Development Bank
Sponsor legal counsel: Lee & Ko
Lender legal counsel: Kim & Chang