GE Capital, the finance arm of General Electric Co, agreed on Thursday to increase a credit line to a unit of South Korea's Hyundai Motor to $1 billion when a previous arrangement expires in January. The deal comes as financial firms world-wide suffer a credit crunch and soaring borrowing costs.
While GE Capital itself is feeling the impact of the credit crisis, South Korean banks and financial firms had had serious difficulties securing foreign borrowing until the government recently pledged state guarantees on bank debt overseas.
GE will roll over an existing credit line worth $600 million to Hyundai Capital Services Inc and offer an additional $400 million, according to Hyundai Capital. Hyundai Capital currently has not taken any debt under the arrangement. GE Capital owns 43 percent in Hyundai Capital. Hyundai Motor, South Korea's top auto maker, owns the rest.
Hyundai Motor said in a filing with the Korea Exchange the agreement would allow GE Capital to swap debt into equities in Hyundai Capital if the latter fails to repay debt within a year from the point the credit was taken. The increased credit line is available for three years from January 2009. In the case of a debt-for-equity swap, Hyundai Motor will buy a portion of equities in Hyundai Capital from GE to maintain its current stakeholding level.