KEB Declines to Aid LG Card

Korea Exchange Bank, whose largest share is owned by a foreign fund company, decided not to join the LG Card bailout. Since KorAm Bank announced to accept only a partial bailout plan, it is highly likely that the LG Card normalization plan, which had been approved by 16 financial companies, would undergo some changes.

This was the first case to publicly decline the government’s request for the bailout ever since foreign funds started owning domestic financial firms.

KEB, with U.S. equity fund company Lone Star as it largest shareholder, revealed following a disclosure on Thursday saying, “After a meeting with the board of directors, we agreed to pull out of the rescue package, which includes fresh loans and converting debt.” KEB was supposed to convert 58.7 billion won of debt to equity and to provide 58.4 billion worn of fresh loans.

Kim Hyoung-Min, the managing director of KEB, said, “I understand the need for cooperating with the government policy but given the financial burden from liquidity aid and reserved allowance following a merger with KEB Credit Service Co., it is impossible to help LG Card.”

However, KEB will extend the maturity of the LG Card bonds and CP which is due in the first half of this year.

KorAm, owned by U.S. fund Carlyle Group Inc. also said, “We will participate in offering 33.4 billion won worth of fresh loan and debt-equity swap for LG Card, but we can’t convert 33.5 billion won of existing loans to equity.”

KorAm explained saying, “Since 33.5 billion won of existing loans is not the bank asset, but bonds that customers bought through bank trusts, we cannot swap debt to equity at our disposal.”

Since two banks decided not give any or offer only a partial financial aid, prior agreement to prop up 1.65 trillion won of additional loans and exchange two trillion won of debt to equity has been broken off. Due to this pull out, Shinhan, Chohung and other banks, who settled to the LG card aid only on the basis that “all 16 financial companies pledge to the plan,” will soon meet to hold another board meeting and discuss the LG rescue matters. Yoon Yong-ro, chief of Policy Bureau 2 in Financial Supervisory Commission (FSC), said, “The agenda hereafter is an issue which creditors led by Korea Development Bank have to decide upon and a bailout plan excluding the two banks will be discussed later.” Nevertheless, Kookmin Bank and other financial companies are strongly against shouldering more burden, and this rescue plan is expected to undergo considerable pain once again.

kyle@donga.com witness@donga.com