Lotte Group back in limbo
By Lee Hyo-sik
A Lotte flag flies in front of the group’s headquarters in Sogong-dong in central Seoul, Saturday. / Yonhap
Lotte Group is facing the worst crisis in its 70-year history as the prosecution widens an investigation into the alleged creation of a slush fund, inter-subsidiary dealings, tax evasion and other illegal activities.
The expanding probe into Lotte Group Chairman Shin Dong-bin and his older sister Shin Young-ja has derailed the group’s plans to list shares of Lotte Hotel and acquire a U.S. chemical firm. Lotte is also expected to face a harder time in winning a license to reopen a duty free shop in southern Seoul later this year.
It scrapped the plan to acquire U.S.-based polyethylene manufacturer Axiall, citing the increasing business uncertainties.
On June 9, Lotte Chemical said it submitted a bid to purchase Axiall, valued at about 4 trillion won ($3.5 billion), as part of efforts to become one of the world’s top 10 petrochemical companies with annual revenue of 21 trillion won.
However, it withdrew the bid a day later when hundreds of investigators raided Lotte Group headquarters in downtown Seoul, offices of group affiliates and Chairman Shin’s residence, confiscating financial records and other corporate documents.
A Lotte Group official said it was unfortunate to scrap the plan of acquiring Axiall, adding that the acquisition would have helped Lotte Chemical strengthen its global competitiveness.
“Chairman Shin has been trying to nurture the group’s chemical unit into one of the world’s largest and most competitive ones. The group’s takeover of Samsung Group’s chemical unit last year shows his intent,” the official said. “Shin and other top executives were at first unwilling to cancel the bid. But given the situation surrounding the group at the moment, they had no other choice but to do so.”
In addition, Lotte has virtually abandoned a plan to list Lotte Hotel, which operates the nation’s largest duty free store chain, on the Seoul bourse amid the escalating prosecution probe into its hotel unit.
The group had postponed the initial public offering (IPO) of Lotte Hotel early this month following a bribery scandal that Shin Young-ja, who is the Lotte Foundation chairwoman, received kickbacks from the head of a cosmetics brand in return for providing favors to the firm in opening its shops at Lotte Duty Free stores.
Lotte had delayed the IPO date to July 21 from June 29, but it has now indefinitely postponed the plan.
Group officials said they will resume the IPO procedure only when the ongoing investigation is completed.
Chairman Shin has been seeking to list the shares of the group’s de-facto holding firm to reduce the influence of Japanese stakeholders and improve the group-wide governance structure.
Lotte planned to use trillions of won raised through the IPO to expand duty free operations abroad and acquire foreign luxury brands.
The duty free business generated 1.33 trillion won in sales last year, accounting for 85 percent of Lotte Hotel’s revenue.
The prosecution probe is also likely to derail the hotel’s bid to regain a license for its duty free store at the Lotte World Tower in southern Seoul, which is scheduled to close on June 30. It failed to renew the license last November.
Lotte planned to apply for a license in December but fears that the ongoing investigation will make it harder to start operations of the World Tower shop.