S Korean lender faces liquidation

Creditors of South Korea's top credit card firm have said they will put the company into liquidation if its ex-parent firm fails to back a bail-out.

LG Card's creditors have given LG group until Wednesday to sign up to a $1.1bn rescue package. The firm avoided bankruptcy thanks to a $4.5bn bail-out in January 2004, which gave control to the creditors. LG Group has said any package should reflect the firm's new ownership, and it will not accept an unfair burden. At least seven million people in South Korea use LG Card's plastic for purchases.

LG Card's creditors have threatened parent group LG Group with penalties if it fails to respond to their demands.

"Creditors would seek strong financial sanctions against LG Group if LG Card is liquidated," said Yoo Ji-chang, governor of Korean Development Bank (KDB) - one of the card firm's major creditors. LG Group has said providing further help to the credit card issuer could hurt its corporate credibility and could spark shareholder lawsuits. It says it wants "fair and reasonable guidelines" on splitting the financial burden with the creditors, who now own 99.3% of LG Card. The creditors have asked the government to mediate to avoid any risk to the stability of financial markets, KDB said. Analysts believe a compromise is likely. "LG Group knows the impact on consumer demand and the national economy from a liquidation of LG Card," said Kim Yungmin, an equity strategist at Dongwon Investment Trust Management.

LG Card almost collapsed in 2003 due to an increase in overdue credit card bills after the bursting of a credit bubble. The firm returned to profit in September 2004, but now needs a capital injection to avoid being delisted from the Korea Stock Exchange. The exchange can delist a company if its debt exceeds its assets for two years running. LG card's creditors fear that such a move would triggered massive debt redemption requests that could bankrupt the firm, which owes about $12.05bn. "Eventually, LG Group will have to participate, but they have been stalling to try to earn better concessions," said Mr Kim.
