The massive Yongsan development project came on the verge of bankruptcy as its developer is facing default under severe financial difficulties.

The Dream Hub failed to the meet the deadline of payment of 5.9 billion won ($5.4 million) in interest on its asset-backed commercial paper as of 6:00 p.m.

The developer would head toward bankruptcy if it could not repay its debt by Tuesday.

KORAIL, the state-run rail operator and largest shareholder, had earlier pledged to inject 6.4 billion won in an effort to rescue the faltering project from a total collapse.

The financial support was offered in the form of a partial advance payment guarantee on the 25.7 billion won which the project financing vehicle Dream Hub was to receive from the Korea Post.

The Seoul Central District Court last month ordered the public corporation to pay compensation for illicitly occupying the construction site in Yongsan, central Seoul. Part of the money was to be delivered to the Daehan Real Estate Trust Corp., the creditor for the project’s asset-backed commercial paper.

The trust firm, however, refused to accept KORAIL’s solution, demanding that the rail operator vouch for the entire amount.

The Yongsan developer was thus unable to pay off its due interest within banking hours Tuesday.

Dream Hub is currently unable to pay off its debts on its own as its funding came down to a mere 900 million won level.

Even if it were to turn the corner this week, the company will still be faced with consecutive financial deadlines, requiring a total budget of 50 billion won by the end of April.

The extensive urban development consortium involves a total of 29 corporations, including KORAIL, but most of them have been reluctant to make additional investment.

KORAIL, set out to break the gridlock, requested private shareholders to give up their privileges for the sake of mutual survival, especially targeting Samsung C&T’s exclusive right to build a 150-story landmark building in the Yongsan complex.

The builder, however, claimed its rightful license over the corresponding construction and blamed the state rail operator for being coercive and for lacking legal grounds.

By Bae Hyun-jung (tellme@heraldcorp.com)