Lotte chairman aims to reduce Japanese influence

Lotte Group Chairman Shin Dong-bin leaves the funeral hall at Asan Medical Center in Songpa-gu, Seoul, Monday. Shin's father Shin Kyuk-ho died of a chronic illness at age 99 on Sunday. / Yonhap

By Kim Jae-heun

“Chewing Gum emperor” Lotte Group Founder Shin Kyuk-ho, who passed away on Sunday, left behind a complicated legacy of remarkable entrepreneurial achievements clouded by corruption and messy family feuds.

Key tasks for the group chairman Shin Dong-bin ― who recently succeeded in an ugly battle with his brother Shin Dong-joo for control of the group ― is how to convince investors that the retail giant will function well and present updated business strategies for corporate sustainability.

As a plan to improve corporate governance and further tighten his grip on the entire conglomerate, the chairman is expected to accelerate moves to list Lotte Hotel on the stock market, the group's critical cash cow, according to company officials and market analysts.

The acrimonious battle with Dong-joo spooked overseas investors. At the time of his release from jail, Shin promised to make the group even better in terms of management transparency. Shin was sentenced to two and a half years in prison in Feb. 2018 for giving 7 billion won ($5.9 million) in bribes to Choi Soon-sil, a confidant of former president Park Geun-Hye. However, he was freed eight months later when an appellate court sentenced him to 30 months in jail suspended for four years.

Thoughts are that the successful listing of Lotte Hotel would soothe growing investors' concerns over the group's transparency, though critics said the “hidden reason” behind the attempts were aimed at solidifying his control over the entire group.

“Chairman Shin wants to simplify the group ownership structure by listing the latter. If the hotel unit goes public, the company can reduce the Japanese firm's influence by selling their stocks or issuing new ones,” an official said. Shin had attempted to list Lotte Hotel in 2016 but the plan had been forced to be put on hold due to prosecution's investigation of the family's involvement in the former president's corruption scandal.

Originating from Japan, Lotte's operations today span numbers of countries and sectors ― from supermarkets, hotels, burger joints and theme parks to massive factories producing oil, aluminum and chemicals.

Regarding the plan of listing of the Lotte Hotel, Mirae Asset-Daewoo analyst Jeong Dae-ro said the plan will take some time before it takes effect.

“The company needs to improve its performance in its duty free business. Listing Lotte Hotel in the end is an imperative step to merge with Lotte Corporation, solidifying Shin Dong-bin's control over the company. “He will sell some of (Lotte Holding's) share during the possible listing process to cut Japanese shareholders' influence while forming a stable market price to merge with Lotte Corporation. This will allow for the acquisition of all the subsidiaries under Lotte Hotel without any expenditure,” Jeong said.

In terms of the specifics of the group shareholder structure, its four major shareholders are Lotte Corporation, Chairman Shin, Lotte Hotel and Lotte Aluminum, each holding 32.5 percent, 11.7 percent, 11.1 percent and 5.1 percent of shares, respectively. But Lotte Hotel owns 38.2 percent of Lotte Aluminum along with those of Lotte Group's many subsidiaries.

Due to the complex governance of the ownership structure, the exact percentages are unknown. However, Lotte Hotel reportedly possesses half of Lotte Group's 32.5 percent share ― which makes the hotel unit the de facto owner of Lotte Corporation. Lotte Holdings shares are owned by the largest stakeholder Kojyunsya, better known as Gwangyunsa here, with 28.1 percent, followed by an employee shareholders association with 27.8 percent, affiliates with 13.9 percent and the company executive's committee with 6 percent.

Gwangyunsa belongs to Shin Dong-bin's estranged brother Shin Dong-joo, who has long been trying to take down the chairman from the chief position. Over 99 percent of Lotte Hotel's share is owned by Japan's Lotte Holdings, resulting in the group being recognized as a “Japanese company” despite its expanded presence in South Korea. Lotte is South Korea's fifth largest industrial conglomerate.