GE's consumer finance arm to buy 38% stake in Hyundai capital

General Electric Co.'s consumer finance unit will pay 1 trillion won ($857 million) to buy an equity stake and bonds in Hyundai Capital Services Inc. to help it gain a foothold in South Korea's auto financing market.

The U.S. company will buy 38 percent of Hyundai Capital, controlled by Hyundai Motor Co., at 16,000 won a share, Hyundai Capital said in a statement. It will also buy subordinated debt to be sold by South Korea's biggest auto financing company.

Mounting defaults by cardholders in South Korea drove LG Card Co. and other consumer finance companies to seek fresh funds from their parent companies and affiliates, as well as bailouts from creditors.

Hyundai Motor and its affiliate Kia Motors Corp. said they expect the alliance with GE Capital and Hyundai Capital will help them sell more cars in the U.S. by helping providing more financing to consumers in the U.S. that buy their Sonata sedans, Sorento sport- utility vehicles and other models.

About one in 13 South Koreans are three months or more behind in personal debt payments after a government-backed credit binge in 1999 to encourage consumer spending. Bad loans at South Korean financial institutions in 2003 rose 11.5 percent from a year earlier to 33.9 trillion won ($29 billion).

Hyundai Motor, Kia Motors Corp. and INI Steel Co. in June last year spent about 454 billion won buying new and existing shares in Hyundai Card Co. and Hyundai Capital. The three companies will spend another 286 billion won next month to buy more shares in Hyundai Card.

Hyundai Capital had a loss of 187.3 billion won last year because of mounting individual defaults. At the end of the first quarter in March, its reported a net loss of 40.8 billion won, compared with a 57 million won profit a year earlier.

Hyundai Motor's gains from equity holdings in Kia and other affiliates plunged 98 percent from a year earlier to 11.5 billion won in 2003 because of losses at its two finance arms, Hyundai Card Co. and Hyundai Capital.

Chung Mong Koo, Hyundai Motor and Kia chairman and chief executive officer, also owns 8.45 percent of the consumer finance company. His son, Chung Eui Son, owns 0.42 percent of Hyundai Capital.

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