The owner of the $240 million Gold Tower 42 project in Phnom Penh has entered into arbitration with the project’s builder, in a bid to get work started again after construction halted on the project in September 2010 due to poor unit sales and cost overruns, officials involved in the process said yesterday.
Lee Sun-hum, country director of Yon Woo Cambodia Co. Ltd., the firm that owns Gold Tower 42, said the arbitration case in Seoul was started last year with Hanil Engineering and Construction Co. Ltd., the company that was contracted to build the skyscraper located at the intersection of Sihanouk and Monivong boulevards.
Hanil broke ground at the site in March 2008, and set out on a mission to build Phnom Penh’s tallest building. But Gold Tower 42 was indefinitely suspended in September 2010 at the height of Cambodia’s property bust, which saw several other South Korean property projects—including the $2 billion Camko City development in Russei Keo district—grind to a halt.
“Regarding the case, I am waiting for the results from Korea, which we are expecting hopefully to happen at the end of May,” Mr. Lee said yesterday. “Once that happens, we shall try our best to restart the [building] process, but we have to get the results from Korea first,” he said.
Yoo Jeoung-hoon, an associate lawyer at Jipyong & Jisung, the firm representing Yon Woo and Daehan Real Estate Investment Trust, which has provided Yon Woo with financing for Gold Tower 42, said his clients had initiated the arbitration proceedings with Hanil.
“The case…has been pending on the arbitration which was instituted and initiated by Yon Woo, and not Hanil at the beginning, and this arbitration took place due to Hanil’s failure of performance,” Mr. Yoo said.
The contract between Yon Woo and Hanil stipulated that Yon Woo would pay a total of $130 million to Hanil to carry out the building work of Gold Tower 42, while the remaining $110 million cost of the project had to be raised by Hanil from sales of the tower’s commercial and residential units.
Only 55 percent of the total units had been sold in Gold Tower, and some buyers had failed to meet their payment duties, said an assistant to Daehan’s country manager Hong Joon-park, who spoke on the condition of anonymity because he is not authorized to speak publicly.
“There was not enough money made in sales [of Gold Tower 42] and Yon Woo would not pay the construction fees,” he said.
“In this situation, Hanil has an obligation to pay in order to complete the building because this is the responsibility of the construction firm according to the contract.”
A manager at Hanil in Phnom Penh, who spoke on the condition on anonymity because he is not authorized to speak to the media, said that financial woes were the reason behind construction work having stopped.
“As you know, the world economic crisis had a big impact on the market, so selling apartments and condos became very difficult. It is very true that it impacted Hanil,” he said, adding, however, that the company still wanted to retain construction rights of Gold Tower 42.
Currently standing at just 31 floors, Gold Tower 42 has become a concrete emblem of the speculative property spending that took place in Cambodia in the lead up to the global financial crisis, which hit the country in 2009.
Chhin Jin-tong, who put down a $1.1 million deposit on 400 square meters of retail space on the first floor of Gold Tower 42, said yesterday that he was still in the dark about the status of the project and his investment.
“We have gathered [six or seven] other investors to complain, but we have not gone to the courts yet because it is too expensive,” Mr. Chhin said, adding that he had no knowledge of the pending arbitration case in Seoul.
Matthew Rendall, a partner at Sciaroni & Associates, a legal advisory firm, said that tenants would likely be compensated for their investment if they decided to go to the court.
“Under Cambodian law, [the investors] paid money and Yon Woo didn’t deliver. It can be quite expensive to go to the courts but they have a strong case. With the ongoing case, it is simply a question of recovery, and where that money would come from,” he said.
“Had that lawsuit been in Cambodia, there could have been an opportunity for those purchasers to get involved, but the fact it is in Korea prevents those Cambodian purchasers from having their interests heard.”
Hanil’s share price as of yesterday on the Korean exchange has fallen by 51.68 percent year-on-year to 1,510 won, or $1.30.
(Additional reporting by Hul Reaksmey)