[Exclusive] Hangang Bus Valuation Down 52.5 Billion Won... SH Recognizes 47.4 Billion Won Loss on Loans

Accounting firm's valuation cuts value from 145.2 billion won to 92.7 billion won

SH may struggle to recover loans even after 2046

Total loans reach 107.2 billion won... Ruling bloc: "No small burden"

Seoul Housing & Communities Corporation (SH), which loaned 107.2 billion won to the Hangang Bus project championed by Seoul Mayor Oh Sehoon, has recognized 47.4 billion won as an accounting loss. This follows an accounting firm's assessment that the value of Hangang Bus plunged by 52.5 billion won. Critics say the loss is a significant burden for a public corporation responsible for housing supply and residential welfare in Seoul.

Hangang Bus (Photo by Yonhap News)

According to SH's audit report for fiscal 2025, obtained by The Asia Business Daily on October 13 through the office of Rep. Lim Hoseon of the Democratic Party of Korea, a member of the National Assembly's Public Administration and Security Committee, SH recorded about 47.4 billion won in provisions for bad debts on its 93.645 billion won in loans to Hangang Bus Co., Ltd. as of the end of last year. SH owns a 51% stake in Hangang Bus Co., Ltd. A provision for bad debts is an amount expected to be unrecoverable from loans or accounts receivable that is recognized in advance as an accounting loss.

SH made this accounting adjustment because an analysis by Taeil Accounting Corporation early this year valued Hangang Bus Co., Ltd. at 92.7 billion won, 52.5 billion won below the 145.2 billion won book value initially recognized. Of the 52.5 billion won, the initial investment of 5.1 billion won had already been recognized as a loss in the previous year. The remaining 47.4 billion won was recorded as a loss by applying it to all of the long-term loans made to Hangang Bus Co., Ltd. by the end of last year (33.1 billion won) and part of its short-term loans (14.3 billion won).

The sharp decline in Hangang Bus Co., Ltd.'s value is due to its poor profitability, which is severe enough to leave the company with capital impairment. According to detailed impairment assessment materials for Hangang Bus Co., Ltd. prepared by Taeil Accounting Corporation this year, the company posted a loss of 14.85 billion won last year and is forecast to incur additional after-tax operating losses of 1.789 billion won this year and 4.532 billion won next year. It is not expected to return to profitability until 2028, when it is forecast to post a 29 million won profit.

However, Hangang Bus Co., Ltd. plans to repay 50 billion won in loans from private financial companies first. As a result, repayments to SH will not begin until 2037, even if the company turns a profit. An analysis found that, even once repayments begin, the loans are unlikely to be fully repaid before 2046 at the earliest.

Taeil Accounting Corporation said of the SH loans, "Based on currently projected cash flows, full repayment is considered impossible." SH has previously addressed concerns about recovering the principal and interest on its loans to Hangang Bus by saying it had "established a long-term repayment plan." The accounting firm's analysis, however, indicates that SH will have difficulty recovering its funds from what remains after Hangang Bus repays financial institutions first.

An SH official said of the provision for bad debts, "It is difficult at present, but as publicity is going well, we expect to be able to recover the funds over an extended period. Fare revenue is also expected to increase somewhat, and we are considering raising fares."

Some members of the ruling bloc, however, have criticized SH, whose main business areas are housing supply and urban and land development, for putting an excessive amount of money into Hangang Bus to support Mayor Oh's signature project and risking a major loss. According to SH, it made additional loans this year, bringing the total amount it had lent to Hangang Bus Co., Ltd. to 107.2 billion won as of October 4.

According to official letters between the Seoul Metropolitan Government and SH regarding cooperation on financing for Hangang Bus Co., Ltd., obtained through Rep. Lim's office, the city repeatedly asked SH to "actively cooperate to ensure that the Hangang Bus project proceeds as planned." In June last year, when Hangang Bus requested emergency financial support from SH, the Seoul Metropolitan Government also sent SH a separate letter asking the corporation, as a shareholder in Hangang Bus, to "actively review the request and cooperate."

Rep. Lim said, "The Seoul Metropolitan Government and SH must present specific plans for how they will secure the funds needed for repayment and who will bear what amount, and on what basis, if additional funding is required. They must manage the risk of being unable to recover the loans and the burden of providing additional funds, and assess the impact on SH's original business."

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