Lotte Chemical at center of widening probe
Chemical firm desperate to normalize operations
By Lee Hyo-sik
Lotte Chemical, which has become Lotte Group’s most profitable unit under Chairman Shin Dong-bin’s reign, is at the center of the prosecution’s widening investigation of the embattled family-controlled conglomerate, according to industry analysts, Thursday.
Prosecutors are investigating whether the chemical unit played a crucial role in creating slush funds for Chairman Shin and other Lotte family members, and helped them accumulate personal wealth through a wide range of allegedly illicit dealings.
For years the chairman has been nurturing Lotte Chemical to make it Lotte’s main revenue source. In 1990, he began his career as heir to his father ― Lotte founder Shin Kyuk-ho ― at the chemical firm, after quitting Nomura Securities in Japan. Through multiple mergers and acquisitions (M&As), the company has become one of Korea’s three main chemical product makers.
According to Whois Corp., a market research firm on Korea’s top enterprises, Lotte Chemical was the group’s most profitable unit in 2015, posting a 1.34 trillion won ($1.15 billion) operating profit. This accounted for 33.1 percent of Lotte Group’s total operating profit.
Lotte Shopping, which generated 16.1 trillion won in sales last year, even more than Lotte Chemical’s 8.5 trillion won, only had a 715 billion won operating profit.
Emerging as the most profitable Lotte unit, investigators suspect the company was mobilized to raise slush funds and orchestrate a host of illegal corporate activities to bolster the wealth of Chairman Shin and his family.
On Tuesday, investigators raided Lotte Chemical for the second time to confiscate more financial records and other documents. They searched the company headquarters in Seoul and its main plant in Ulsan, as well as the residence of CEO Huh Soo-young.
Prosecutors allege that Lotte Chemical paid undue fees to the trading arm of Lotte Group in Japan when importing raw materials, transferring the funds raised through the scheme to the Shin family.
The prosecution is now hinting it may ask Japanese authorities to probe the trading firm.
“Investigators seem to be focusing more on Lotte Chemical than Lotte Shopping or other affiliates because the chances are that the most profitable unit would have been more mobilized to illegally benefit the Shin family,” said an executive at one of the country’s major business associations, who declined to be named.
“It is known that Chairman Shin has special attachment to Lotte Chemical, as he first began his career there and worked to transform it into one of Korea’s major players. The company has been on a roll over the years without hitting a bump. But the ongoing investigation will adversely affect its plan to emerge as one of the world’s largest chemical firms.”
The chairman holds a 0.26 percent stake in the company.
Lotte Chemical has expanded through multiple M&As over the years. Last year, it took over the chemical units of Samsung Group. Earlier this month, it sought to acquire U.S.-based polyethylene manufacturer Axiall, but had to scrap the bid amid the widening prosecution investigation.
“We want the ongoing investigation to be completed as soon as possible so that we can normalize our operations,” a Lotte Chemical official said. “What we need the most is to be able to focus on expanding our business so we can increase investments and hire more workers.”