South Korea’s Posco Engineering & Construction Co. (Posco E&C) will soon embark on sale of its headquarters building in Incheon, west of Seoul, with an aim to open an auction this month.

According to multiple sources from the investment bank industry on Friday, Posco E&C is expected to send out an invitation letter to investment banks and accounting firms next week to participate in leading the sale of its headquarters in Songdo, Incheon. Posco E&C, a sister company of the country’s largest steelmaker Posco Co., aims to initiate the bidding process as early as this month after it already completed property valuation. Currently, the construction firm is receiving sale-related consultation from EY Han Young, the Korean member firm of Ernst & Young.

The sale of the Posco E&C’s head office will likely pick up speed as the company has recently earned full ownership in the building after paying for 356.6 billion won ($307.7 million) worth of asset-backed commercial paper (ABCP) in lieu of Posco E&C Songdo International Building Inc. (PSIB), which is a special purpose vehicle (SPC) and previous owner of the Songdo property that was set up in 2008 to build Posco E&C headquarters. The SPC was invested 51 percent by Terra P&D Co. and 49 percent by Posco E&C.

An official from the seller side who asked to be unnamed also said that as Posco E&C plans to complete the selloff by the end of the year, it is expected to select a preferred bidder no later than August or early September.

But market sources said that bidding price would be a major setback in its sale. They note that even if Posco E&C sells the property in the form of sales and leaseback - where it leases back the asset from the purchaser, guaranteeing rent - the expensive price tag of over 10 million won per 3.3 square meters that Posco E&C is said to be hoping to receive could scare off potential buyers. Market participants said it is appropriate to set the price in the 8 million won per 3.3 square meters range or 360 billion won in total.

Market insiders note that key to the success of the sale is whether Posco E&C is willing to lower the sale price. An office building in Pangyo, a new bustling tech valley in Gyeonggi with a lower vacancy rate than those in Songdo, is currently sold at the price tag of maximum 10 million won per 3.3 square meters. Some people expect Posco E&C that is eager to secure funds would willingly agree to narrow the price gap to sell the property.

By Ko Min-suh

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]