A General Motors Corp bankruptcy filing seemed inevitable after a rebellion by its bondholders forced it to withdraw on Wednesday a plan to swap bond debt for company stock.

GM has until Monday to complete a government-ordered restructuring that includes debt reduction, labor cost cuts and plant closures.

But a bankruptcy reorganisation is likely after the company said its offer to exchange US$27 billion in unsecured debt for 10 per cent of the company's stock had failed.

GM has received US$19.4 billion in federal loans.

The automakers shares lost 16 cents, or 11.1 per cent, at US$1.28 in premarket trading.

John Pottow, a professor at the University of Michigan who specialises in bankruptcy, said GM evading bankruptcy now is almost impossible.

"They said no. That's it. They tried. That's why they're going to have to file for bankruptcy," Pottow said.

Next move

GM spokesman Tom Wilkinson said the board will meet later this week to decide its next move, but he would not say exactly when.

He also would not say if the company would soon file for bankruptcy protection, nor would he reveal what percentage of bondholders took the offer.

In a statement issued Wednesday, the company said: "The principal amount of notes tendered was substantially less than the amount required by GM to satisfy the debt reduction requirement under its loan agreements with the US Department of the Treasury."

The Obama administration has said it would only provide more funds if 90 per cent of the bondholders, as well as unionised workers, agreed to concessions that substantially reduced GM's costs.

GM also said it cancelled meetings set for Wednesday with holders of notes that were not sold in US dollars. The statement said the meetings were to discuss amendments to the debt-for-equity offers, but it did not specify what the amendments were.

There was a small hope Tuesday that GM could avoid a bankruptcy filing when the United Auto Workers (UAW) union disclosed that it would take a 20 per cent stake in GM - down from the original plan of 39 per cent.

That seemingly freed 19 per cent of the Detroit-based company's shares to sweeten the pot for its recalcitrant bondholders.

Bondholder deal

But because the bondholder deal did not go through, the equity freed by the UAW deal now apparently will go to the US government, which may have to commit billions more for GM's restructuring in court.

The government's stake in the company originally was to be 50 per cent, according to GM's regulatory filings.

But it now could be as high as 69 per cent.

The Canadian government also could get equity for up to US$8 billion in aid for the automaker.

Such an arrangement would leave bondholders back where they started - and a Chapter 11 filing all but certain. The deadline for GM's bondholders to tender their debt was midnight Tuesday.

Meanwhile, cross-town rival Chrysler LLC headed to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat Group SpA in hopes of saving itself from liquidation.

Chrysler filed for bankruptcy protection April 30, after the government ended talks with a group of holdout bondholders.

Automakers worldwide are struggling as the global recession has reduced demand for new vehicles.

But GM and Chrysler have been particularly hobbled by promises to cover the health and pension costs of tens of thousands of unionised retirees - along with recent record-high gasolene prices that reduced demand for their low-mileage trucks and SUVs.

Stock shares

When GM announced its debt exchange last month, the company offered bondholders 225 shares of common stock for every $1,000 in debt - or a 10 per cent stake in the restructured company. In addition to the UAW's share, the federal government was to take 50 per cent for exchanging a combined $20 billion of their debt to equity. Current stockholders would end up owning just 1 per cent of the company.

A committee representing GM's biggest bondholders - mostly big banks and other institutional investors - had opposed the debt-for-equity swap from the start.

Smaller, "retail" bondholders - individual investors like retirees and families - have also railed against the terms of the exchange. Both groups say the offer gives them too small a stake for the amount they are owed.

Bankruptcy

GM had said previously that the government was preventing it from offering bondholders more than 10 per cent of the restructured company.

Some analysts said GM's bondholders may be holding out for better terms in bankruptcy. Stephen Lubben, a law professor at Seton Hall University, said unsecured creditors like bondholders often recover 40 per cent of their investment in bankruptcy.

"They may not do much better, but they can't do any worse," he said.

Investors who hold credit default swaps on GM debt stand to make about US$2.33 billion if the insurance contracts are triggered, according to the Depository Trust & Clearing Corp.

- AP