A consortium of creditors acquiring South Korea's LG Card emerged yesterday as the most likely option to save the country's largest credit card company sinking under huge debts.
The eight creditor banks of LG Card have been working against the clock to make the terms of selling LG Card more attractive to potential buyers as letters of intent were supposed to be presented by the end of business yesterday.
They have decided to sell LG Card in an action, which is to be participated by the creditors themselves only.
The letters of intent were originally supposed to be sent by Tuesday, but none of them actually made an offer and the deadline for the letters of intent has been put off until yesterday.
"The most realistic option is that a creditor or creditors which are interested in taking over LG Card form a consortium and normalize the company rather than letting LG Card go belly-up," Hana Bank president Kim Seung-Yu was quoted as telling the Korea Economic Daily.
He ruled out the possibility of Hana Bank, reportedly the most likely candidate to acquire LG Card, taking over the company alone.
He noted Hana Bank's equity capital is 3 trillion won (US$2.5 billion) while LG Card's debt exceeded its assets to leave it with a negative net worth of 3.24 trillion won.
"Under these circumstances, it is impossible for Hana by itself to take it over. I say again, Hana Bank has neither capacity nor intention to acquire LG Card without others' participation," he said.
A spokesman of Woori Bank said the creditors have proposed new terms for the sale, including a possible write-down of LG Card's capital and swapping their loans to LG Card for equities in the company.
News reports said the creditors had proposed a 60 percent write-down of the capital, prompting LG Card shares slumping by the daily-limit margin of 15 percent for the second straight trading day to 3,640 won yesterday.
If this proposal becomes reality, shareholders including two US investment funds Templeton Asset Management and Capital Group will sustain huge losses from their respective equity holdings.
There were no immediate comment by either Templeton or Capital Group.
The liquidity crisis at LG Card has highlighted problems faced by South Korea's shaky credit card industry.
LG Card and seven other major local credit card firms had 6.9 trillion won of bad loans outstanding, including bills overdue a month or longer, equivalent to 11.74 percent of their total assets as of the end of October.
South Korea has 3.6 million credit card users -- one in seven economically active people -- defaulting on their card loans.
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