Sun, Jan 11, 2004 - Page 11 News List

Bailout allows LG Card to resume its lending services

AFP , SEOUL

South Korea's largest credit card issuer, LG Card Co, resu-med cash advance services yesterday after its creditors injected emergency loans under a bailout deal, a company spokes-man said.

The ailing LG Card halted the advances from Thursday to Friday for the second time in less than two months due to a cash shortage.

"The creditors rushed 800 billion won [US$677 million] of emergency loans to us overnight. We resumed cash advance services at all the 17 banks in tie-up with us at 8:00am," the spokesman said.

The overnight call loans will be rolled over until Thursday next week.

Liquidity

"There will be no more liquidity problems in the future," the spokesman said, adding that the company would also receive hundreds of millions of dollars in payments from clients.

At the behest of the government, LG Card's 16 creditor banks and LG Group reached a final agreement late Friday on a 5 trillion won (US$4.2 billion) bailout package to rescue the company, which has 14 million users.

Under the agreement, the creditors will inject 3.65 trillion won of funds into the company, including two trillion won of their existing loans which will be swapped into equities in LG Card.

Part of the 2 trillion won will be swapped into equities before the company's eroded capital is drastically written down, with the rest being changed into equities afterwards.

Fresh loans

Creditors will also extend 1.65 trillion won of fresh loans to LG Card, which will also be swapped into equities.

LG Group in turn will contribute 1 trillion won of funds into the bailout package.

The state-owned Korea Development Bank (KDB) and LG Card will jointly shoulder 500 billion won of "new money" which would be necessary to cover potential losses which may arise after LG Card is taken over by the KDB under the agreement among creditors.

LG Group agreed to provide 75 percent of the 500 billion won of "new money," with KDB picking up the remaining 25 percent.

But the group and other creditors want KDB to shoulder potential losses in excess of the US$500 billion ceiling.

The Korean Development Bank has not yet accepted this demand but it gave its final consent to the deal late Friday.

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