Lotte Group shelved what may have been a US$4.5 billion initial public offering, the world’s biggest so far this year, for its hotel unit after widening investigations pushed the South Korean conglomerate deeper into crisis.
Hotel Lotte decided to hold off on the IPO after talking to arrangers and considering “internal and external issues”, the company said in a statement in Seoul on June 13, a day after the parent group signalled the deal would be shelved. Despite the decision, the company will proceed with plans to expand its duty-free business, it said.
It’s the latest blow to hit the conglomerate, which has 89 Korean units with more than 100 trillion won (Dh313.9bn) in assets. With the group still reeling from a feud that tore its founding family apart, Lotte sank into deeper turmoil last week as Korean prosecutors widened their investigation into the business empire amid allegations of slush funds and embezzlement.
“This crisis can be viewed as a problem of governance and lack of transparency at Lotte Group,” said Kim Ho Joon, the director of the governance research department at Daishin Securities in Seoul. “In the long term, Lotte needs to fundamentally improve its corporate governance.”
All of Lotte’s eight listed units fell in Seoul on June 13, losing a combined 1.1tn won in market value. The shares fell because of the investigation, said Kookhee Han, an analyst at NH Investment & Securities.
The latest investigation came days after another – one looking into possible bribery – led Hotel Lotte to delay the IPO and scale back its proposed price range. At the high end, the maximum $4.5bn offering would still have been the world’s largest so far this year and the biggest ever in Korea.
That would have been a boon for the banks – Mirae Asset Daewoo, Citigroup and Bank of America Merrill Lynch – that had been struggling with a slow year for such deals worldwide. For the IPO market, the January-to-March period was its worst quarter since the global financial crisis and this quarter is heading for another slump relative to past years.
Shelving the IPO will add to the struggles Lotte has faced since last year. Besides the investigations, Hotel Lotte has been seeking to make up for losing to a rival bidder a licence in November for its key duty-free business, the company’s biggest revenue source. Last month, the Korean government banned Lotte Shopping’s home shopping channel from broadcasting during prime-time hours for six months after the company was accused of omitting names of two executives convicted of bribery when applying for a licence.
After the raid on its group headquarters, Lotte Chemical said it withdrew its bid for Axiall Corp, citing the “difficult situation” that it is facing in Korea. Axiall instead agreed to be sold to Westlake Chemical for $2.4bn.
Then there is the power struggle atop the dynasty that founded the group, the fifth-largest of Korea’s family-run conglomerates – known as the chaebol – that dominate the country’s corporate landscape.
Shin Dong Bin, Lotte Group’s chairman, faced a coup attempt a year ago by his older brother and their patriarch father. The plan backfired as the father, who founded the group and was then chairman, was sidelined to an honorary position and the oldest son was stripped of group positions. The older brother has since attempted multiple challenges to Shin Dong Bin’s authority, but to little avail.
Shin Dong Joo, the older brother, said last week that this is the biggest crisis that Lotte has ever faced and called for the company to give a thorough explanation of the situation.
The Seoul group, founded in Tokyo in 1948 by Shin Kyuk-Ho, has a vast network of businesses in South Korea and Japan including department stores, hotels and processed food.
All nine Lotte subsidiaries listed on the Seoul stock exchange dropped heavily yesterday, losing more than 1tn won in combined valuations.
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