By Park Si-soo
Lotte Group's aggressive acquisitions of companies are raising concerns as to whether it is biting off more than it can chew.
The group was selected last week as the preferred bidder for KT Rental, the biggest car rental company in Korea. This comes as the nation's fifth-largest conglomerate is moving to acquire Italian airport retailer World Duty Free and a giant shopping mall in Moscow.
Last month, the company made a lavish investment to take control of the largest amount of duty free space at Incheon International Airport for five years.
Lotte has pledged to make record investments totaling 7.5 trillion won ($6.82 billion) this year to aggressively seek out "future growth engines."
"We are always looking for good companies to take over," a Lotte spokesman said. "The primary target is those who can contribute to sustainable and stable growth."
He said the company is keen to expand in emerging markets, especially Vietnam, Russia, Indonesia and China.
The spokesman denied allegations that Lotte's aggressiveness in merger and acquisition has markedly intensified recently for a specific reason, saying the KT Rental case is the only done deal, while nothing is certain with the other ones.
He also denied allegations that the group's takeover attempts were to put Chairman Shin Dong-bin in a better position to inherit ownership of Lotte that has more than 70 affiliates in Korea, Japan and many other countries from his father, Shin Kyuk-ho, 93.
Since Dong-bin became Lotte's chief strategist in 2004, the group has acquired controlling stakes in 35 companies, many of which have grown as Lotte's major cash cows.
His father, who founded Lotte in 1967, still holds a controlling stake in the company, but market watchers say the time has come for him to hand over his "throne" to a successor.
The chairman is known to have engaged in two-way competition with his elder brother Shin Dong-joo over ownership of the group. The latter was recently ousted from all decision-making positions in the company, indicating that Dong-bin has cemented his position as heir apparent.
Asked about his brother's forced resignation, he told reporters on Jan. 13 that it was "my father's decision."
The Lotte spokesman noted the group's financial health is "good enough." If the company falls into situations where it needs to have capital injection, he added, it will raise capital in a way that doesn't compromise the interest of investors.
Moody's Investors Service maintained Lotte Shopping's Baa2 ratings and stable outlook after its plan to acquire KT Rental was confirmed, but added it could pressure the ratings if its financial contribution to the transaction is material. Lotte Shopping is one of the group's biggest affiliates.
"It is premature to assess the impact of the KT Rental acquisition on Lotte Shopping's credit profile and ratings, because the cost of the acquisition and Lotte Shopping's contribution to it have not yet been disclosed," said Yoon Wan-hee, a Moody's vice president and senior analyst. "However, the deal could pressure Lotte Shopping's ratings if its contribution turns out to be material, given its already high financial leverage."
Lotte's debt is estimated at 35.2 trillion won, up 3.6 trillion won over the past two years, according to data from the financial sector. Its debt-to-equity ratio is 65.8 percent.
Lotte Group's aggressive acquisitions of companies are raising concerns as to whether it is biting off more than it can chew.
The group was selected last week as the preferred bidder for KT Rental, the biggest car rental company in Korea. This comes as the nation's fifth-largest conglomerate is moving to acquire Italian airport retailer World Duty Free and a giant shopping mall in Moscow.
Last month, the company made a lavish investment to take control of the largest amount of duty free space at Incheon International Airport for five years.
Lotte has pledged to make record investments totaling 7.5 trillion won ($6.82 billion) this year to aggressively seek out "future growth engines."
"We are always looking for good companies to take over," a Lotte spokesman said. "The primary target is those who can contribute to sustainable and stable growth."
He said the company is keen to expand in emerging markets, especially Vietnam, Russia, Indonesia and China.
The spokesman denied allegations that Lotte's aggressiveness in merger and acquisition has markedly intensified recently for a specific reason, saying the KT Rental case is the only done deal, while nothing is certain with the other ones.
He also denied allegations that the group's takeover attempts were to put Chairman Shin Dong-bin in a better position to inherit ownership of Lotte that has more than 70 affiliates in Korea, Japan and many other countries from his father, Shin Kyuk-ho, 93.
Since Dong-bin became Lotte's chief strategist in 2004, the group has acquired controlling stakes in 35 companies, many of which have grown as Lotte's major cash cows.
His father, who founded Lotte in 1967, still holds a controlling stake in the company, but market watchers say the time has come for him to hand over his "throne" to a successor.
The chairman is known to have engaged in two-way competition with his elder brother Shin Dong-joo over ownership of the group. The latter was recently ousted from all decision-making positions in the company, indicating that Dong-bin has cemented his position as heir apparent.
Asked about his brother's forced resignation, he told reporters on Jan. 13 that it was "my father's decision."
The Lotte spokesman noted the group's financial health is "good enough." If the company falls into situations where it needs to have capital injection, he added, it will raise capital in a way that doesn't compromise the interest of investors.
Moody's Investors Service maintained Lotte Shopping's Baa2 ratings and stable outlook after its plan to acquire KT Rental was confirmed, but added it could pressure the ratings if its financial contribution to the transaction is material. Lotte Shopping is one of the group's biggest affiliates.
"It is premature to assess the impact of the KT Rental acquisition on Lotte Shopping's credit profile and ratings, because the cost of the acquisition and Lotte Shopping's contribution to it have not yet been disclosed," said Yoon Wan-hee, a Moody's vice president and senior analyst. "However, the deal could pressure Lotte Shopping's ratings if its contribution turns out to be material, given its already high financial leverage."
Lotte's debt is estimated at 35.2 trillion won, up 3.6 trillion won over the past two years, according to data from the financial sector. Its debt-to-equity ratio is 65.8 percent.
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