LG Card creditors in tug of war
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SEOUL, South Korea (Reuters) -- Creditors to LG Card Co. remained far apart over whether to back a $4.2 billion rescue of South Korea's largest credit card issuer.
Analysts said on Tuesday lenders and authorities were maneuvering to minimize their contributions to a proposed debt-for-equity swap and were unlikely to let LG Card go under, given a possible domino-effect on the financial sector.
Reeling from soured loans extended during a credit boom, the company has said it will run out of money on Wednesday without fresh loans. Its shares plunged by their daily 15 percent limit for a second consecutive session to a record low of 2,530 won.
Talks on a proposed joint takeover of LG Card by 16 creditors have dragged on, with key lenders such as Kookmin Bank and Shinhan Bank wary that the deal as it stands could translate into more losses for them.
The government has come under pressure from creditors to effectively nationalize LG Card via state-run Korea Development Bank (KDB).
On Tuesday, Kookmin called on the government to take a 50 percent stake in the credit card company either by itself or through state-run lenders. KDB was considering taking a 23 percent stake, up from a previously proposed 19 percent, a top financial regulator said.
"Now that the government has said the problems represent systemic risks, it should play a leading role in taking responsibility for them," Yoon Jong-kyoo, an executive vice president at Kookmin, told Reuters.
Opposition mounts
Kookmin, the country's biggest bank, failed to reach an agreement over the fate of LG Card in a strategy meeting on Tuesday morning and would not support a rescue package until the government agreed to take over half of LG Card, Yoon said.
A joint takeover by creditors would be "a short cut to failure" for LG Card, Kookmin Chief Executive Kim Jung-tae told reporters, a Kookmin spokesman said.
Kim said Kookmin had until Thursday to consider LG Card's problems. "LG Card will not go bankrupt either today or tomorrow," he said.
Shinhan Bank, a unit of the country's second-biggest financial services company, Shinhan Financial Group, also remained opposed to the plan.
"Having us pump up money into a company which we can't bet will remain alive means forcing us to invest in something with uncertain prospects," a source at Shinhan's corporate loans department told Reuters.
South Korea's authorities continued stepping up pressure on creditors to support the proposed 4.95 trillion won ($4.15 billion) debt-for-equity swap.
"As regards to the recent credit card problems, I hope you will come up with measures which work for the interests of all of us and limit the risk of the financial markets, instead of focusing on short-term profits," Finance Minister Kim Jin-pyo told bankers and financial company executives in a speech.
Roh Tae-shik, a director general of the regulatory Financial Supervisory Service's non-banking division, said creditors were very likely to approve the package by Wednesday as KDB was discussing upping its proposed stake in LG Card to 23 percent to relieve the burden on other lenders.
"The rescue plan is very likely to be approved soon," Roe said.
LG Card is the biggest casualty of a credit boom that has left one in 10 South Koreans above the age of 15 unable to repay debt. The troubles could threaten a recovery in South Korea's economy, which crawled out of recession in the third quarter.
Copyright 2004
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
