[Survival Mode JR REITs]①Defeat in London... KRW 600 Billion Negotiations Begin in Earnest

"Cash Trap Valid" Ruling Sets Repayment Start for December Next Year
Seoul Bankruptcy Court Appoints Samil PricewaterhouseCoopers as Examiner
KRW 600 Billion Debt Restructuring and Five-Year Repayment Plan Review in Full Swing

Editor's NoteWith JR Global REIT, the first listed REIT to apply for rehabilitation proceedings, having also lost its case in the UK, the fate of its KRW 600 billion-level debt restructuring is facing a major test. The Asia Business Daily examines the key issues left by the UK court ruling, the controversy over the Finance Tower’s valuation, the feasibility of the five-year repayment plan, and pinpoints the institutional gaps revealed by this crisis.

JR Global REIT, the first listed REIT in Korea to apply for corporate rehabilitation, lost the UK lawsuit surrounding the appraisal of the Brussels Finance Tower. On September 8 (local time), the Commercial Court of the High Court of Justice in England ruled that the appraisal—which served as the basis for the lenders activating the cash trap mechanism—was valid under the loan agreement.

JR Global REIT, the first domestic listed REIT to file for corporate rehabilitation proceedings, has lost a lawsuit in the UK related to the appraisal of Brussels Finance Tower. Photo by Getty Images

As a result, the five-year repayment plan that JR Global REIT has proposed to its creditors will be subject to another review based on scenarios in which repayment starts later and the company faces an increased funding burden. With the Seoul Bankruptcy Court appointing Samil PwC as an examiner, an external review has begun into both the going concern value of the company and the proposed repayment plan.

UK Court: “Evaluation Was Inadequate, But Not Deliberately Engineered for a Specific Outcome”

The lawsuit began when Jones Lang LaSalle (JLL), appointed by the lender group, appraised the value of the Finance Tower at EUR 920 million. Due to this appraisal, the loan-to-value (LTV) ratio exceeded the loan agreement’s limit of 52.5%, triggering the cash trap and preventing repatriation of local rental income to Korea. The company filed a lawsuit against the loan agent, CBRE Loan Services, arguing that the lender group intervened in the valuation process, leading to an undervaluation of the asset.

The court acknowledged that some members of the lender group wanted the valuation to be EUR 950 million or less, and that JLL may have been aware of these interests toward the end of the process. However, the court found no evidence that improper pressure was exerted for a particular valuation or that JLL lost its independence.

The appraisal itself was also subject to criticism. The court pointed out that the cross-check using discounted cash flow methodology was merely formal and some key issues were inadequately addressed. It also noted that those responsible for the appraisal appeared not to fully grasp the significance of their work’s potential consequences.

Nevertheless, the court concluded that these issues alone did not invalidate the appraisal. While the quality of the appraisal fell short of being considered highly competent, it did meet the contractual standards required, and there was no indication that the appraisal had been engineered in advance to deliver a specific outcome.

Repayment Now Starts in December Next Year...Heavier Burden on Restructuring Plan

The most immediate change resulting from the court defeat is the repayment timeline. According to the company’s public plan, if it had won the case, it would have paid interest starting March next year, and begun principal repayment in June. With the loss, principal and interest payments are now scheduled to begin in December next year, after refinancing the Finance Tower's mortgage.

The company also faces greater funding pressure. In the event of victory, only part of the KRW 144.6 billion proceeds from the sale of the Manhattan office building in the US would have been used for repayment of Belgian senior loans. Following the defeat, the entire amount must now be used for repayment of that loan. The amount that will need to be further raised for next year’s refinancing will also increase—from KRW 171 billion to KRW 283.7 billion.

The crux of the matter is that next year’s refinancing plan assumes a new appraisal value of EUR 1.1 billion for Finance Tower. Since the company’s efforts to void the EUR 920 million appraisal, which underpins the current cash trap, have failed in this ruling, the basis for expecting large-scale refinancing based on a EUR 1.1 billion appraisal next year will also come under scrutiny.

However, the currency hedge burden has been significantly reduced. On September 4, the company announced that, by partially terminating currency hedge transactions in JR No.26 REIT and JR No.28 REIT, the related debt—about KRW 165 billion at the time of the rehabilitation application—had dropped to approximately KRW 44.3 billion based on current exchange rates. This move utilized the decline in exchange rates to reduce future settlement liabilities.

Korean Court Launches Full-Scale Review of Five-Year Repayment Plan

The Korean rehabilitation procedures have also entered a full review stage. The 18th Division of the Seoul Bankruptcy Court (Presiding Judge Yang Minho) recently appointed Samil PwC as the examiner. The examination will include whether the company’s going concern value exceeds its liquidation value and whether it is appropriate to proceed with rehabilitation. The deadline for filing the interim report is September 28.

Lee Jeongyeop, head of the law firm Law Jipsa and a former judge at the Seoul Bankruptcy Court, explained, “The pre-commencement investigation is a procedure to determine whether liquidation would be better than rehabilitation,” adding, “It reflects a decision that waiting endlessly for voluntary negotiations is no longer feasible.”

The Seoul Bankruptcy Court has also extended the Autonomous Restructuring Support (ARS) period, in which the company and creditors try to reach an agreement on their own, until September 14. Since the examiner’s report is due after this, there is a possibility that the negotiation period could be extended again.

Negotiations are expected to be difficult. Based on the list of creditors at the time of the rehabilitation filing, currency hedge-related debt stood at approximately KRW 165 billion, public bond debt at KRW 321 billion, private bond debt at KRW 59.2 billion, and loan obligations at KRW 55.4 billion—totaling in excess of KRW 600 billion. The company plans to repay these amounts staggered through 2031.

Minority shareholders also numbered about 28,000 as of the end of last year. They are not only shareholders but also creditors for KRW 22.7 billion in unpaid dividends. The stakeholders—public bond investors, currency hedge counterparties, private bondholders, and lenders—all have different interests. Ultimately, the key question is whether creditors will accept the five-year plan the company has put forward. The UK lawsuit is over, but tough negotiations for JR Global REIT are just beginning.

This content was produced with the assistance of AI translation services.