Shin's return jumpstarts Hotel Lotte IPO

Lotte World Tower in Jamsil, Seoul / Korea Times file

By Nam Hyun-woo

Lotte Group Chairman Shin Dong-bin

Lotte Group appears to be accelerating its plan to list the shares of Hotel Lotte, which holds considerable stakes in Lotte Property and Development and other key group units, since Chairman Shin Dong-bin was released from jail on Oct. 5, industry analysts said Friday.

Korea's fifth-largest conglomerate has been trying to create a holding company structure for the past few years, with Lotte Corp. at the top holding majority stakes in shopping, chemical, construction and other subsidiaries. Then, Chairman Shin, who has a 10.5 percent stake in Lotte Corp., will control all the group's units.

Taking public Hotel Lotte, which Lotte Holdings in Japan currently controls, has been the key to completing the holding company structure in Korea because it reduces Lotte Holdings' stake in the nation's largest hotel chain.

After the shares of Hotel Lotte are floated on the local bourse, the group reportedly plans to combine it with Lotte Corp. to create a new holding firm.

To jumpstart the largely stalled process to take Hotel Lotte public, Lotte Corp. on Oct. 10 decided to acquire a 23.24 percent stake in Lotte Chemical from two affiliates of Lotte Property and Development (11.27 percent) and Hotel Lotte (11.98 percent) in separate block deals.

The deals were worth 2.23 trillion won ($1.96 billion).

Under the deal, the holding firm said its stake investment in Lotte Chemical will help diversify its business portfolio, which currently focuses on retail, food and beverages.

The deals came just five days after Shin was freed from detention as an appellate court suspended his sentence of corruption charges. He had been in jail since February for involvement in a corruption scandal of the impeached former President Park Geun-hye.

Upon his release, Shin said: “I will make enhanced efforts on the improvement of the group's ownership structure, which has been delayed so far.”

Over the move, analysts said Lotte will increase momentum in addressing remaining tasks for ownership restructuring, such as embracing Lotte Chemical into the holding firm structure and the IPO of Hotel Lotte.

“Lotte has been tapping into the listing of Hotel Lotte since 2016 and that will likely be carried out in the near future,” Korea Investment & Securities analyst Yoon Tae-ho said.

“Though the valuation of Hotel Lotte will be lower than expected, given the remaining uncertainties in its domestic duty free business, Lotte has to consider the IPO more actively in regards with Lotte Japan's stance of supporting Shin and the listing.”

After his 2015 brotherly dispute over the group's control, Shin pledged the listing of Hotel Lotte and the ownership restructuring to restore the tarnished reputation of the group as well as dilute the dominant Japanese stakes in Hotel Lotte. Shin could take an advantage in the fight thanks to support from Lotte Japan, whose holding firm and investment firms have more than a 97 percent stake in Hotel Lotte.

In 2016, however, Hotel Lotte withdrew from the listing as the prosecution launched an investigation into the group's alleged creation of slush funds and the IPO effort has not been resumed since then.

A remaining task for Lotte to offer Hotel Lotte to the market is the duty free license of Lotte World Tower in Jamsil, of which Korea Customs Service (KCS) will judge whether to strip the license or not over the bribery scandal.

Since the duty free outlet is accounting for 15 percent of Hotel Lotte's duty free revenue, the store's license will play a key role in the valuation of the hotel's IPO.

The appellate court found there was Shin's “implied request” for the outlet's duty free license while paying 7 billion won to a confidant of former President Park, but the court at the same time acknowledged Shin was “coerced to pay” the money, casting a favorable sign for Hotel Lotte to keep the license.

Another prerequisite for the Hotel Lotte listing is resuscitating the company's earnings, which was hit hard by China's retaliation against Korea's decision to deploy a U.S. Terminal High Altitude Area Defense battery.

“Hotel Lotte listing has been tried twice before and the group is still pursuing it,” a Lotte official said. “However, we have not determined the when and how of the IPO.”