Seoul advises Mirae to cut leverage for $3 bn IFC deal

South Korea’s land ministry has advised Mirae Asset Global Investments Co. to cut the proposed leverage for its 4.1 trillion ($3 billion) deal to buy the International Finance Center in Seoul, according to the ministry and industry sources on Friday.

In May, Mirae Asset was selected as the preferred buyer of the landmark tower by Brookfield Asset Management. The deal is expected to be the country’s largest real estate transaction this year.

In the following month, it notified the ministry that it would launch a 4.1 trillion-won real estate investment trust (REIT) to finance the purchase. It aims to close the deal by the end of next month.

The REIT was supposed to secure 2.1 trillion won in senior loans at an annual rate of 4.2% and another 2 trillion won in equity financing. It has already secured 1.7 trillion won to 1.8 trillion won in loans.

But the Ministry of Land, Infrastructure and Transport dismissed the financing plan, which it says is heavily dependent on borrowings and could hurt investors.

Currently, the interest rate on senior loans extends to the high end of the 5% range.

Also, the ministry recommends that the REIT to be launched pay a dividend of 3-5% of the invested money per year. It rejected Mirae's suggestion that the upcoming REIT skip dividend payments in its first three to four years of business.

A REIT requires government approval to launch. It raises money from equity investors or through debt to buy real estate and distributes rent and other income in dividends.

To meet the government guidance, Mirae said that it would raise additional equity funding. Singapore’s GIC and a Dutch pension fund are understood be interested in the IFC deal.

If Mirae attracts additional equity funding, the ministry will likely give the nod to the REIT, a land ministry official told The Korea Economic Daily.

But domestic pension funds may be unlikely to cough up extra money for the IFC transaction.

“With the position of National Pension Service CEO left vacant, other major pension funds (in South Korea) remain hesitant about making new investments amid political uncertainties,” said one of the investment industry sources.

“Such an environment is working against Mirae Asset.”

Since President Yoon Suk-yeol took office in May this year, some state-run institutes have replaced their chief executives.

In case the plan to set up a REIT goes awry, Mirae is considering establishing a special purpose company or a fund to finance the IFC deal.

The tower is comprised of an office tower, Conrad Hotel Seoul and the IFC mall. The sale to Mirae created an over 50% return to Brookfield in six years from its first real estate purchase in Korea.

Mirae Asset Global Investments and its affiliates manage 280 trillion won in assets as of the end of 2021. 

Write to Tae-Hoon Lee and Eun-Jung Kim at beje@hankyung.com
Yeonhee Kim edited this article.