Creditors stepped up pressure yesterday on the patriarch of South Korea's second largest conglomerate LG Group, warning the group's ailing credit card unit could be insolvent this week.
The warning came as group chairman Koo Bon-Moo remained reluctant to make a personal debt guarantee in return for emergency loans from creditors to LG Card, bank officials said.
The group promised to rescue the country's largest credit card company through a capital expansion plan, calling for a 2 trillion won (US$1.67 billion) bailout.
Koo offered his 5.46 percent stake in the group's holding company LG Corp as collateral.
Creditors, however, demanded the chairman put up his personal wealth as collateral and his family members were asked to put up their stakes in LG units as further guarantees.
LG Card suspended cash loans to customers for more than three hours on Friday, blaming a computer glitch, although it came close to defaulting on 301.5 billion won of promissory notes.
Kyobo Life Insurance presented the promissory notes to a local bank but took them back following consultations with LG Card, allowing it more time to deal with its maturing debts.
Analysts say LG Card needs at least 3 trillion won to tackle its liquidity crunch. The company posted a loss of 1.01 trillion won for the first nine months of this year.
South Korean credit card firms struggle with a huge amount of unpaid card bills despite 3.9 trillion won in new capital being poured into the sector this year.
They posted a combined loss of more than 4 trillion won between April and September, resulting in a massive slump in bank profits this year.
International credit appraiser Fitch Ratings warned last week that South Korea's ailing credit card sector could damage the ratings of banks and corporations.
Fitch said the credit card sector represented 11.9 percent of South Korea's total household loans as of June.
South Korea's economic growth last year was fuelled by domestic consumption promoted by easy credit but the consumer binge has left a massive hangover and mounting household debt.
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