Banks have agreed in principle to give their support to a proposed multibillion dollar debt restructuring package for South Korea, banking sources said Thursday.

The proposal, agreed on in talks among major U.S. and foreign banks, calls for a bond issue of up to $25 billion.

That would include up to $15 billion in short-term loans that would be swapped for bonds and another $10 billion in fresh financing. Sources said the package, first proposed by J.P. Morgan & Co., could go as high as $30 billion.

Sources stressed that this is by no means a done deal. The proposal has so far been presented only informally to South Korean authorities, who have yet to react.

In addition to the restructuring proposal, banks that met Thursday also agreed to roll over short-term South Korean debt beyond the end of this month.

South Korea has been experiencing a severe liquidity crisis since several major corporate borrowers ran into difficulties in making their debt payments last year. The country owes foreign banks more than $100 billion, excluding offshore borrowings by South Korean banks and corporations. Of that amount, some 70% is in short-term loans that banks must either roll over or write off.

Thursday's meeting was held at Citicorp offices in Manhattan and was attended by representatives of major U.S. banks including J.P. Morgan, Chase Manhattan Corp., and several large European and Japanese banks.

Sources added that the Morgan proposal has the support of several investment banks, including Merrill Lynch & Co., SBC Warburg, and Lehman Brothers.

Representatives of Salomon Smith Barney and Goldman, Sachs & Co. did not attend. Both Salomon and Goldman have been retained as financial advisers by the South Korean government and have been working on separate proposals to issue bonds for South Korea.

Banking sources said a bank deal would not necessarily exclude the possibility that the two investment banks might arrange other transactions for South Korea on their own or that South Korea might seek alternative financing to what is being proposed by the banks.

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