Shinsegae Group has filed a lawsuit against the Korea Water Resources Corporation, or K-Water, after its ambitious 4.6 trillion won ($3.2 billion) Hwaseong International Theme Park project, also known as Star Bay City, faced the risk of cancellation due to financial penalties imposed by K-Water.
A consortium of Shinsegae Property and Shinsegae Engineering & Construction, both subsidiaries of Emart, recently filed a lawsuit with the Seoul Central District Court, according to sources on March 14. The suit challenges K-Water’s penalty assessment and seeks to reset the project’s construction deadline to prevent the government agency from imposing the damages.
K-Water notified Shinsegae that it would impose liquidated damages of 15.5 million won per day for construction delays, amounting to an annual total of 5.66 billion won. According to the project’s bidding guidelines, Shinsegae must begin construction on the main facility by March 18 this year. However, construction has not started due to delays in securing necessary permits, including the site’s designation as a tourism complex.
The delays stem from an audit by Korea’s Board of Audit and Inspection into allegations that Shinsegae purchased the project site from K-Water at an unfairly low price. The audit, which began in October 2021, found that Shinsegae acquired the land for 325.6 billion won based on an appraisal that significantly undervalued the site—nearly half of its estimated valuation. The auditor concluded that K-Water had violated bidding guidelines by granting preferential treatment to Shinsegae.
Hwaseong City submitted an application to Gyeonggi Province for the site’s designation as a tourism complex. The review process is expected to take over a year. If construction is delayed until the second half of next year as anticipated, Shinsegae could face over 10 billion won in liquidated damages.
K-Water has stated that if Shinsegae fails to pay the liquidated damages, the land sale contract will be terminated in accordance with the bidding guidelines. If the contract is canceled, Shinsegae will forfeit its 32.56 billion won down payment—10% of the land price—as a penalty to KWRC, and the business agreement between the two parties will be automatically voided.
Shinsegae has filed a lawsuit to cancel the imposition of liquidated damages, arguing that the construction delay is beyond its control. The company claims that the theme park project is progressing smoothly under a separate agreement with K-Water and insists that the delay is due to the prolonged audit rather than any negligence on its part.
Industry insiders claim Shinsegae will unlikely abandon the project despite the legal dispute. The Hwaseong theme park is Chairman Chung Yong-jin’s flagship initiative and a core part of the group’s expansion strategy. With its main retail business struggling amid increasing competition from e-commerce giants like Coupang, Shinsegae sees the project as a crucial growth driver. In addition, with land values in Hwaseong rising due to development activity, the company has little incentive to walk away from a site it acquired at a favorable price.
Shinsegae Property and Shinsegae E&C, the project’s lead developers, established a joint venture, Shinsegae Hwaseong, in September 2020. Between December 2020 and March this year, the company raised 198.5 billion won through seven rounds of paid-in capital increases. The large-scale project is also crucial for Shinsegae E&C, which is facing liquidity challenges.
A Shinsegae official confirmed the lawsuit, stating, “We are trying to reset the construction deadline through the lawsuit while communicating with K-Water, and there are no issues with the permit process. The project is moving forward.” However, K-Water has declined to comment, saying it needs to verify the details.
