As one of the early PPP projects in Korea, the Seoul Beltway charged a relatively high toll fee for financed roads and large numbers of Seoul Beltway users have requested that the toll fee be reduced. The government authority and the concessionaire agreed to reduce the toll fee in a deal that included, as a key component, the extension of the concession period for an additional 20 years, providing sufficient incentive for the concessionaire to execute the amended concession agreement and enter into a KRW 2,400,000,000,000 facility agreement with new lenders.
All prior instances of project restructuring in the Korean PPP market required prepayment of all or part of the concessionaire’s existing loans including high-yield shareholder loans. This approach made it impossible for the existing shareholders of the concessionaire who had extended such shareholder loans to maintain their expected investment rate of return. As a result, the shareholders in some cases refused to accept the proposed restructuring deals. By contrast, in the Seoul Beltway PPP restructuring, the concessionaire was not required to prepay existing loans, but instead executed a new facility agreement in a deal that included the successful segregation of secured assets for existing lenders from secured assets for new lenders. This approach allowed the concessionaire to successfully reduce the toll fee without impairing the interests of the existing shareholders who had extended shareholder loans. It is expected that future restructuring deals for various other early PPP projects that have used Minimum Revenue Guarantee (MRG) arrangements will particularly benefit from using a similar term-extension approach.
One of the key legal issues in this deal related to existing uncertainty in the interpretation of the current PPP laws and regulations of Korea as to whether the concession period for private roads could be extended for a total period of up to 50 years. Lee & Ko was able to resolve this concern by successfully persuading the government authority to accept an interpretation allowing for such maximum extension periods and specifically obtained the authority’s consent for extending the concession period of the Seoul Beltway for an additional 20 years. The precedent established in this case is expected to open the door for other private roads in the Korean PPP market to also extending their concession periods up to a total period of 50 years.
At Lee & Ko, Hun KO supervised and spearheaded the key negotiations in this transaction, while Hyun Su KIM and Hyun Bum YU also played key roles in handling various matters relating to documentation (including financing documents) and negotiations for the project. Lee & Ko’s market leading expertise and experience in PPP project restructuring and other PPP project market transactions are recognized as having been instrumental in the successful and satisfactory completion of this restructuring transaction for all parties involved.