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. Last Updated: 07/27/2016

South Korean Banks Hold New LG Loans

SEOUL, South Korea -- Banks halted fresh loans to LG Semicon Co. on Monday, accusing it of resisting a promised merger that would create the world's second-largest computer memory chip maker.

President Kim Dae-jung's government wants LG Semicon to merge with Hyundai Electronics Industry Co. to cut out overlapping investments by the country's computer chip makers and boost their competitiveness.

Hyundai and LG, the nation's largest and third largest conglomerates, agreed in September to merge their chip-making subsidiaries. But talks have stalled because of a dispute over who should take control of the merged company.

The government supports a U.S. consulting firm's recommendation that Hyundai become the majority shareholder in the new entity. LG says it cannot accept the recommendation because it was biased in favor of Hyundai.

Later Monday, LG Semicon's 13 creditor banks, most of them state-controlled, held LG responsible for foiling the merger and stopped providing new funds to the heavily indebted company.

The banks threatened to call in LG Semicon's existing loans as well unless it accepts the merger.

LG Semicon's total debt amounted to 7.48 trillion won ($6.23 billion), mostly owed to banks. About $3.5 billion of the debt comes due within a year.

"LG Semicon must do what it has agreed to do, which is very important to its future and credibility," President Kim was quoted by his spokesman Park Jie-won as saying.

The LG-Hyundai merger, if realized, would create a company with 17 percent of the world's memory chip market.