GM Daewoo JV Facing $2 Billion Hurdle

SEOUL, July 23 Kim Kyoung-wha writing for Reuters reports that General Motors Corp's takeover of South Korea's troubled Daewoo Motor faces funding hurdles as creditors clash over $2 billion in promised funds for the new venture, lenders said on Tuesday.

The debate is set to come to a head this week as lenders meet over funding a venture that GM and banks plan to revive South Korea's third-largest automaker.

"We cannot provide loans at a loss," said an official at Woori Bank, flagship of South Korea's second-largest financial services group.

The impasse is unlikely to scupper the venture as Daewoo's main lender, the state-run Korea Development Bank (KDB), is expected to offer a compromise, the official told Reuters.

GM officials were not immediately available for comment.

Banks fear losses from loans to the new GM-led venture under terms agreed to in April that involve fixed interest rates.

Creditors have been asked to provide a $750 million loan at a fixed annual rate of six percent and $1.25 billion at the market rate, which is currently about 11 percent.

"(Talks) depend on what proposal the KDB comes up with," the Woori official told Reuters.

Though the world's largest automaker is participating in the venture it is not guaranteeing the requested loans, so lenders say there is risk involved in providing fresh funds.

"The venture is not risk-free," SG Securities bank analyst Hwang Jin-sang said.

"When you (as a bank) have good sources of revenue, why would you go into troubles with unfavourable terms?"

Conflict is brewing over the deal between KDB and fellow lenders Woori, Chohung Bank and Korea Exchange Bank, South Korean newspapers reported this week.

"Working-level officials are studying details as a prior step for creditors to meet some time this week," a KDB official told Reuters by telephone.

The Woori official said creditors had been informed of the meeting but declined to give details of the timing or agenda.

The GM-led venture plans to operate three of Daewoo's 16 plants and requires operating funds under an agreement worked out between Daewoo's banks and Detroit-based GM on April 30.

The milestone deal offered new life to Daewoo and promised to boost GM's scant presence in South Korea as well as its sales across Asia, where it has holdings in Japan and China.