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After much debate, the government, the LG group and its creditors have finally reached a last-minute compromise on a plan to rescue the troubled card company, it was announced Friday.
Under the plan, LG Card is to undergo the process of normalization under the management of Korea Development Bank (KDB) in the coming year before being sold off. The LG group promised to inject up to W375 billion into LG Card in the event of a liquidity crisis, to keep the trouble card issue afloat.
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Kim Jung-tae, the CEO of Kookmin Bank, takes questions from reporters before attending a meeting with LG Card bondholders at the Woori Bank main office on Friday.
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According to Woori Bank, the main creditor of LG Card, 16 of the firm’s creditors held a meeting Friday and agreed on a plan under which KDB would take managerial control of the company for one year as its largest shareholder (with a 25 percent stake), and the creditors would convert W3.65 trillion in debt to equity.
In addition, KDB and the LG group have agreed to provide up to W500 billion (W125 billion, or 25 percent, by KDB and W375 billion, or 75 percent, by the LG group) to help LG Card overcome its liquidity crisis.
“The chance exists that LG Corp. chairman Koo Bon-boo will sell off his 5.46 percent stake in LG Corp. to raise part of the funds required for additional aid to the card company,” a group official said.
Consequently, the LG Group’s total financial aid to its card unit is to increase to W1.73 trillion, including W200 billion raised from a capital increase conducted at the end of last year, W300 billion from LG Corp’s acquisition of LG Card’s corporate bonds, W500 billion from the group’s purchase of LG Card’s bonds held by individual investors and its subsidiaries, and proceeds from the sale of LG Securities (estimated at W350 billion) and promised additional aid worth of W375 billion.
LG Group officials said that the agreement reflects the group’s strong commitment as its large shareholder to normalizing LG Card.
The potential for trouble remains, however, as no agreement has been made on who is to shoulder the financial burden, which runs in excess of W500 billion, that is required for the company’s survival.
LG Card failed on Friday to provide cash-advance services for the second consecutive day, due to cash shortages, but with the agreement, the services are expected to resume around Sunday.
(Kim Young-jin, hellojin@chosun.com )
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