LG Group pushed to rescue LG card

LG Group pushed to rescue LG card

Agence France-Presse, Seoul

The South Korean government said on Thursday creditors could pull the plug on a rescue bid for LG card unless the firm's parent company, LG Group, provides more financial aid.

South Korea's number one card issuer could face insolvency within days, a senior finance ministry official said.

Efforts to rescue heavily endebted LG Card are mired in a dispute over how the burden of a planned 5.15 trillion won (US$4.3 billion) bailout package should be shared among creditor banks, LG Group and the government.

In the government-backed package, state-owned Woori Bank and Korea Development Bank (KDB) would join 14 other creditors in the bailout based on a four trillion won equity swap and 1.15 trillion won in aid promised by LG Group.

In a bid to make the proposal more acceptable to reluctant creditors, KDB has offered to raise its stake in LG Card from 19 percent to 25 percent.

Director General Byeon Yang-Ho of the Financial Policy Bureau of the Ministry of Finance and Economy said KDB would take over LG Card and turn it into a subsidiary.

However, creditors have expressed concern about an unspecified amount of additional liquidity which would be necessary to keep the company afloat over the coming year.

Byeon said KDB should shoulder 25 percent of the newly required liquidity while LG Group, South Korea's second biggest conglomerate, should provide the remaining 75 percent, suggesting that other units of LG Group would buy debt issued by LG Card.

"If LG Group rejects this proposal, creditors will pull the plug on LG Card and it would be only a matter of a day or two before the company would face insolvency," Byeon told journalists.

LG Group, however, said it had no way of meeting the creditors' demands.

It noted that its large shareholders, including members of the founding family, have already offered their stakes in the group as collateral and that they have taken part in providing one trillion won of liquidity to LG Card.

LG Card's crisis highlights the problems of South Korea's shaky credit card industry. At the end of November, LG Card's delinquency rate rose to 14.7 percent from 11.4 percent at end- October.

The delinquency rate at South Korea's eight credit card firms jumped to 13.5 percent at the end of November from 11.7 percent in October. Total defaults rose to 7.7 trillion won from 6.9 trillion won.