By Choi Kyong-ae
Lotte Group is considering an initial public offering to list shares of its affiliate Lotte Hotels & Resorts on the main Korea Exchange to help improve transparency and its governance structure, the group said Monday.
“The IPO plan for the hotel affiliate has been under consideration for the past few years but nothing has been decided yet,” a spokesman for the conglomerate said.
The response came after media reported that Lotte Group was giving serious consideration to an IPO amid the ongoing succession battle between two sons of the group founder Shin Kyuk-ho, Dong-joo and Dong-bin.
Economists and analysts say Lotte Group now has more compelling reasons to push the IPO plan for the hotel and resort business.
“Listing shares of Lotte Hotels & Resorts whose shareholding structure is unclear will help allow Lotte Group to mend its murky governance structure in Korea and Japan. It will also allow investors to get the right information for their investment decisions through investor relations sessions,” Dongbu Securities analyst Cha Jae-heon said Monday.
Kim Hyun-ki, a research fellow at LG Economic Research Institute, said the government is also putting pressure on Lotte to make its governing structure public through a tax audit as the family mudslinging worsens.
Lotte Hotels & Resorts “has played like a holding company in Korea for other Lotte Group affiliates” such as fast food restaurant Lotteria with a stake of 18.77 percent, packaging materials company Lotte Aluminium with 12.99 percent and Lotte Shopping with 8.83 percent, the spokesman said.
But Lotte Holdings, the de facto holding company of Lotte affiliates across the two countries, and other Lotte affiliates in Japan collectively controlss more than 90 percent of Lotte Hotels & Resorts, he said confirming news reports.
The reports also stated that Lotte Shopping and Lotte Hotels & Resorts could be merged into one entity and listed on the Korean stock market.
“We have not discussed the merger issue as part of the IPO plan,” another spokesman said, calling it a “far gone” scenario.
Analysts said Lotte affiliates in Japan and Shin Kyuk-ho and his family will be able to sell their stake in Lotte Hotels & Resorts or issue new shares in an IPO. The move will lower the overall stake owned by Lotte’s affiliates in Japan, they said.
“But the idea of reducing Lotte Japan operations’ control over affiliates in Korea through the IPO of Lotte Hotels & Resorts won’t be easy. That’s because it also means reduced influence and management rights of the Shin family over the group,” LG researcher Kim said.
Large conglomerates such as Samsung Group have been criticized for the owners and their families’ control of most affiliates with only a small stake. Lotte Group stands out in terms of lack of transparency, Kim said.
The leadership battle started in January when the elder son Dong-joo was dismissed from Lotte’s Japan business after his father Kyuk-ho, then general chairman in charge of Lotte Group operations in Korea and Japan, found out he failed to report an investment in a new business to him. Since then, he repeatedly asked for forgiveness from his father which was eventually given.
Recently, Kyuk-ho visited Japan with Dong-joo in a failed attempt to dismiss the younger son Dong-bin as he made investment losses worth 1 trillion won in Chinese businesses and didn’t report the details to his father.
The Shin brothers continue to drum up support to win the battle before a shareholder’s meeting at Lotte Holdings in Japan takes place. The date for the meeting has not been decided on.
Shin Kyuk-ho founded Lotte in Japan in 1948 and later expanded into Korea where succession wars are not rare among conglomerates.
In 2013, Lotte's Korean operations led by Dong-bin posted 55.42 trillion won in sales, dwarfing the 4.57 trillion won of its Japan businesses then led by Dong-joo.