It has been confirmed that Lotte Construction has given up a residential apartment land development project in Ho Chi Minh City, Vietnam, that it had pursued for seven years. Lotte Construction jointly invested with a local developer in 2018 to establish a special-purpose company (SPC) as the project operator and pushed a multifamily housing development within the Thu Thiem New Town, a suburban residential district of Ho Chi Minh City, but sold all of its equity in May. This was Lotte Construction's first development project in Vietnam, but it exited without even breaking ground.
According to the construction industry on the 23rd, Lotte Construction in May sold all the equity it had invested in connection with the Ho Chi Minh "La Premier" development project to its local partner, the Phu Coung group.
A Lotte Construction official said, "Nothing in the project moved forward," and explained, "We disposed of all equity before moving into stages such as permits and groundbreaking." However, the sale price was not disclosed.
This project was one in which Lotte Construction and Vietnam's mid-sized developer Phu Coung group in 2018 agreed to develop 725 multifamily housing units and commercial facilities in two 25-story buildings on a 15,848-square-meter site within the Thu Thiem New Town, a suburban residential district of Ho Chi Minh City. The two companies jointly invested to establish the project operator special-purpose company (SPC) "Hau Giang Commercial and Construction Investment Co," and Lotte Construction acquired 51% equity for 14.666 billion won. Until then, Lotte Construction had only handled simple turnkey construction, but with this project it was pushing its first direct development project in the Vietnamese market.
At the time, Lotte Construction expected presales revenue of about $98 million (about 137 billion won) and planned to break ground in Oct. 2018 and complete in May 2020. However, the project has not progressed at all to date.
According to the Financial Supervisory Service, as of the end of last year Lotte Construction reflected 9.99 billion won as the equity of the special-purpose company for this project in its business report, equivalent to 68.1% of the acquisition amount. The special-purpose company posted a net loss of 137 million won last year. A Lotte Construction official said, "Specific terms with the local partner were not agreed upon, and we judged that liquidation was acceptable," adding, "This is a case that was liquidated before a concrete business plan was drawn up."
Lee Eun-hyung, a research fellow at the Construction & Economy Research Institute of Korea, said, "Overseas projects involve many variables, such as relationship building with local firms and the government's permitting process, so you never know when and how issues will arise, and it is common for projects not to proceed for a long time," adding, "Lotte Construction's withdrawal this time appears to be because negotiations with the local firm did not go through properly."
Meanwhile, Lotte Group, Lotte Construction's parent company, also executed a large-scale withdrawal from Ho Chi Minh City last month. Lotte Group conveyed to the Ho Chi Minh City People's Committee on Sept. 20 its intention to halt the roughly 1 trillion won Thu Thiem Eco Smart City complex project due to delays in permitting procedures.
Lotte Group had planned to build a large mixed-use complex on a 50,000-square-meter site in Ho Chi Minh City's Thu Thiem area, ranging from five underground floors to 60 above-ground floors, comprising commercial facilities such as a shopping mall, offices, a hotel, a residence, and apartments. In 2017, Lotte Group signed a project contract with the city through Lotte Properties Ho Chi Minh, pre-invested 220 billion won in capital, and launched the project. However, permitting and land use fee negotiations only concluded in Jul. last year, eight years later, and Vietnamese authorities increased the requested land use fee from the existing 100 billion won range to about 1 trillion won. Lotte Group determined that the project's profitability had deteriorated and decided to withdraw.