Another Lotte unit under tax audit

By Lee Hyo-sik

The head office of Lotteria is shown in Yongsan, Seoul, Wednesday. The National Tax Service (NTS) conducted a month-long tax probe into the fast food chain arm of Lotte Group. / Yonhap

A Lotte Group’s fast food franchise was found Wednesday to have been audited by the tax agency, igniting speculation that agency may expand its investigation to other Lotte affiliates.

The latest tax audit of Lotteria came after the unprecedented sibling feud over management has exposed the conglomerate’s opaque governance structure and outdated business practices.

The National Tax Service (NTS) has already been conducting an audit of Daehong Communications, Lotte’s public relations unit.

According to Lotteria, NTS officials visited the company headquarters in Seoul early July and confiscated financial documents and other materials. Company officials said the probe ended in early August and they haven’t yet been informed of any probe results.

“It is true that we underwent the NTS audit,” a Lotteria official said. “But it has nothing to do with the ongoing succession feud among Lotte founding family members. It was simply a regular tax inspection.”

In 2011, the company was subject to an NTS audit. The tax office normally conducts a corporate probe once every four to five years.

Taking Lotte Hotel public

As pledged by group Chairman Shin Dong-bin a week ago, Lotte Hotel, the de facto holding company of Lotte Group in Korea, said Wednesday that it will send a request for a proposal (RFP) to a dozen Korean and non-Korean securities firms to find a lead-manager for its initial public offering (IPO).

While making an apology for the succession feud with his elder brother on Aug. 11, the chairman vowed to have Lotte Hotel listed on the local bourse to reduce the influence of Lotte companies based in Japan over Lotte Hotel and other group units in Korea.

Shin said the Lotte Hotel IPO will improve the group’s corporate governance and make its management more transparent.

The country’s largest home-grown hotel franchise, set up in 1972, said that it will draw up a short list of two or three brokerage firms by Aug. 31 after reviewing the proposals.

The company will then have the contenders give presentations early next month on how they will take it public. It will select one entity that will manage its IPO.

“When the IPO manager is selected, we will follow up on necessary procedures to become a publicly traded company,” a Lotte Hotel official said. “We will first hold the board of directors’ meeting and then the shareholders’ meeting to revise rules for the company to become a publically traded entity.”

Lotte Hotel acts as a holding firm of Lotte Group in Korea as it has considerable stakes in dozens of group affiliates here. Through Lotte Hotel, Lotte Group in Japan controls the group's Korean operations. Twelve L-Investment firms in Japan, which are owned by Lotte Holdings, hold a combined 72.65 percent stake in Lotte Hotel, and Lotte Holdings owns a 19.07 percent stake in the company.

Lotte Group also plans to take other affiliates here public, such as Lotteria and Seven Eleven, in a bid to further simplify its ownership structure.

“Chairman Shin’s principles are to have all group units listed on the stock market in order to make their management transparent and create a model governance structure, “ a Lotte Group official said. “After Lotte Hotel, more group units will file for IPO. Separately, we will soon require affiliates to appoint outside directors.”

Out of 80 Lotte units here, only eight, such as Lotte Shopping and Lotte Chemical, are listed on the local bourse.