The state-run rail operator KORAIL announced on Friday that it will wash its hands of the troubled Yongsan development project as its normalization proposal failed to gain approval from the board of Dream Hub PFV.

Dream Hub is a special purpose company, set up in 2007, for decision-making on the Yongsan project, the nation’s single largest development plan to build an international business district in central Seoul. It is composed of 30 shareholders, including KORAIL, the biggest shareholder with a 25 percent stake.

“KORAIL’s last-ditch efforts to rescue the project became ineffective, with the rejection of the board. Our normalization plan required a two-thirds agreement from 10 board members for the launch, but half of them from Samsung C&T, Lotte Tour and Prudential, opposed the proposal,” KORAIL said in a statement.

“With the decision of the board, KORAIL cannot further interfere with the private project as a state-run company and so we will take steps to dismantle the project abiding by the law,” it added.

KORAIL will host a board meeting to discuss follow-up measures to drop out of the project on Monday.

The Ministry of Land, Infrastructure and Transport also advised KORAIL not to take a leading role in the private development project, asking the company to strengthen risk management by opening an exclusive account for the Yongsan development project, separate from its accounting business on rail operation.

KORAIL came up with the project normalization proposal, including a capital increase plan, and asked the 29 other shareholders of Dream Hub to agree on the proposal in a bid to share responsibility for the project revival, but some of the shareholders expressed opposition against the request. They said that a clause in the proposal offering the state-run company a right to cancel the project if needed is unacceptable.

Despite KORAIL’s decision, other shareholders allegedly will prepare another normalization plan and propose it to the board of Dream Hub.

Dream Hub was declared default last month after failing to pay 5.9 billion won ($5.4 million) interest on 2.7 trillion won worth of asset-backed commercial paper. It will officially face bankruptcy if it can’t pay back 1 trillion won ($896 million) worth of asset-backed commercial paper that will expire in June.

By Seo Jee-yeon (jyseo@heraldcorp.com)