The LG Group and the creditors of LG Card have reached a dramatic compromise which removed barriers to a bailout plan and headed off a feared bankruptcy of the country's largest credit card issuer, banking authorities said Friday.
The last-minute deal, struck between LG Card's creditors and top LG Group officials during an overnight marathon meeting, saved LG Card from a threatened liquidation and put it on a solid path toward normalization, they said.
"I am very happy to bring on the eve of New Year's Day good news to the whole nation," Governor Yoo Ji-Chang of Korea Development Bank (KDB) said at a news conference.
KDB is one several creditor banks of LG Card.
"The creditors and the LG Group have agreed to contribute 500 billion won (US$479 million) each to the recapitalization program," Yoo said.
The size of the rescue package was reduced to 1.0 trillion won (US$958 million) from an initial 1.2 trillion won, as LG Card's performance had been improving considerably over the past year, he said.
LG Card, which slipped into financial crisis in the second half of 2003, shifted back into the black in September 2004. KDB and other bank creditors had urged LG Group to join in a new rescue package for the ailing former LG unit, threatening to cut credit lines to the country's second-largest conglomerate if it had refused.
KDB said previously that LG Group could sell LG Card bonds and commercial paper it holds to creditors at a discount price in a cash buy-out deal, or convert some 875 billion won worth of commercial paper into equity.
The creditors later eased their stance, suggesting that the debt-equity swap could be lowered to 770 billion won and then to 670 billion won, while LG Group had gradually raised its offer from an initial 264.3 billion won.
Under the final agreement, LG Group's largest individual share holder -- LG Group's patriarch Koo Bon-Moo -- would take on some 235.7 billion won to help increase LG Card's capital.
LG Card President Park Hae-Choon said starting from this year, the company would be able to post 200 billion won of net profits every year.
"We won't need any additional aid," he said.