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UPDATE 1-GM's S.Korea auto JV facing $2 bln funding hurdle

(Recasts, adds analysts comments)

By Kim Kyoung-wha

SEOUL, July 23 (Reuters) - General Motors Corp's takeover of South Korea's troubled Daewoo Motor faces funding hurdles as creditors clash over $2 billion in funds that the new joint venture needs, lenders said on Tuesday.

The debate is set to come to a head this week as lenders meet over funding a venture GM and banks will form 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.

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," he said, referring to main Daewoo backer, state-run Korea Development Bank.

As the world's largest automaker is not guaranteeing the requested loans, lenders also say despite Detroit-based GM's participation there is risk involved in providing the venture with 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.

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

They expect KDB to propose a compromise, he said.

The GM-led venture has purchased three of Daewoo's 16 plants and requires operating funds.

The world's No. 1 automaker signed an agreement on April 30 to buy key assets from bankrupt Daewoo, a deal that gives GM a firmer foothold in Asian car markets and marks a milestone in Korea's corporate reform.

Among key points agreed was a fresh $2 billion in long-term committed working capital provided to the new company by South Korean creditors.

Shares in Daewoo Motor Sales , which trade as a proxy for the unlisted automaker, rose 2.3 percent to 6,190 won on Tuesday, lagging the benchmark index which rose 3.14 percent.