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LG Card Halts Cash Advance Services Again

Posted January. 08, 2004 23:15,   


As the LG Card crisis that had showed signs of being resolved was deteriorating, the company’s cash advance services were suspended again on Thursday.

The credit card company may enter another terrible situation, such as bankruptcy, unless LG Group, creditor banks, and the government find a breakthrough in last-minute negotiations.

“Because our balance in some banks, including Woori, Shinhan, and Hana, was depleted, cash advance services were suspended at 2:30 p.m. and as of 5:00 p.m., 15 out of 17 banks stopped the service,” LG Card said. Cash advance services continue in Jeju Bank and Jeonbuk Bank.

“Cash advance services are likely to be completely ceased if emergency funds are not provided by creditors today,” the issuer added.

The company had suspended cash advance services for four days in November last year due to a liquidity crunch.

Eight million frequent users out of 14 million LG card holders had not been able to withdraw cash.

Meanwhile, the government and creditors agreed that the Korea Development Bank will increase its stake in LG Card to 25 percent and take the responsibility for solving 25 percent of the card issuer’s additional liquidity and financial problems and that the remaining 75 percent will be handled by LG Group.

The negotiation is at a stalemate now, however, because LG Group is reluctant to accept the agreement, saying that there is no practical way to carry out the agreement for its part.

The banking community says that LG Card cannot avert a bankruptcy on Friday if the final agreement is not reached by Thursday.

According to the Financial Supervisory Committee, the 550 billion won of maturing loans, including commercial paper (CP) and Asset-Backed Securities (ABS), were rolled over but they can no longer be rolled over from Friday.

Once a bankruptcy is declared, the company is highly likely to fall under court receivership immediately.

The government and creditor banks began to put all-out pressure on the card company on Thursday.

Kim Jin-pyo, Deputy Prime Minister and Minister of Finance and Economy, stressed at a regular briefing that as a controlling shareholder, LG Group should take the responsibility as much as creditors bear the loss.

“LG Card will become bankrupt unless LG Group accepts the agreement between the government and the creditors,” said a high-ranking financial official.

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