LG Card Completes Conversion of Investment of 2.545 Trillion Won

The Korea Development Bank (KDB), which temporarily took over LG Card, announced Wednesday that 15 credit banks of LG Card completed a second conversion of investment worth 2.545 trillion won. The creditors also approved LG Card’s financial restructuring program, outlining plans for 175.8 billion won in net profits in 2005 and 2006, according to the KDB.

LG Card averted insolvency by raising 3.5 trillion won of capital in total, including a 953.9 billion conversion of investment this January. Credit banks will own 99 percent of LG Card’s stake with the latest conversion of investment. Creditor’s corporate income taxes on gains on valuation of securities reduced as the LG Card’s share price dropped 320 won, closing at 5,480 won, after it soared to 570 won Tuesday. The falling share price enabled LG creditors to convert debt into equity.

Despite the conversion of investment, many financial experts are not optimistic about the future outlook of LG Card’s normalization.

LG Card says it needs an additional capital increase worth 1.5 trillion won in order to avoid being delisted from the Korean Stock Exchange early next year. It is noteworthy to see creditors’ responses as the necessary recapitalization would require another massive capital write down.

Raising 1.5 trillion won of additional capital will bring LG Card’s capital to four trillion won, with equity capital of only about 500 billion won. Since the listing requirements mandate listed companies to maintain net worth at a level more than one half of its capital, LG Card’s capital should be reduced to one trillion won through capital reduction. Moreover, LG Card announced a plan to reduce its 21 trillion won in assets as of the end of 2000 to 11 trillion won by the end of 2006. “It implies that LG Card still has many non-performing loans to write off,” said an analyst on condition of anonymity. “Smaller assets hamper business activities and hurt profits, which might become an obstacle to LG’s business normalization.” Creditors and the LG Group will discuss the additional capital increase together since LG Card can do business without being listed on the stock exchange, according to Na Jong-gyoo, an executive at the KDB.

Keuk-In Bae Suk-Ho Shin bae2150@donga.com kyle@donga.com