Risk & Compliance

Lotte Group Scraps Hotel Unit Public Listing

The South Korean conglomerate is reportedly the target of a bribery investigation that led to a raid on its headquarters last week.
Katie Kuehner-HebertJune 13, 2016

South Korea’s Lotte Group said Monday it had scrapped plans for a $4.5 billion initial public offering of its hotel unit as Korean prosecutors expanded their investigation of the conglomerate amid allegations of bribery.

The planned IPO of Hotel Lotte Co. would have been the world’s largest so far this year and the biggest ever in Korea. Lotte Group, which has 89 Korean units with more than $85 billion in assets, cited “internal and external issues” for its decision to withdraw the offering.

On Friday, prosecutors raided Lotte Group headquarters, Hotel Lotte and other Lotte companies. According to South Korean media reports, they are investigating whether a local cosmetics company paid bribes in exchange for floor space at Hotel Lotte’s duty-free retail outlets.

Lotte has also abruptly dropped its multibillion-dollar bid to acquire U.S.-based chemicals company Axiall.

“The scrapping of the Hotel Lotte IPO is a potential blow to the strategic plans of newly minted group Chairman Shin Dong-bin,” the Wall Street Journal said, noting that the offering was aimed at giving him more capital to restructure the conglomerate.

Shin Dong-bin wrested control of Lotte Group from Shin Dong-joo, his brother and the company’s heir apparent, in a management coup last year.

While Hotel Lotte operates a number of hotels, it derives nearly all of its sales and profit from its duty-free stores. In another blow to the company, the Korea Customs Service last year stripped it of a license to operate a duty-free store at the 123-story Lotte World Tower — the country’s tallest skyscraper.

As Reuters reports, Hotel Lotte had earmarked $1.45 billion of its IPO proceeds to grow its duty-free operations overseas. The company said it would continue to pursue expansion of its local duty-free business and new overseas duty-free locations despite the pulling of its listing plan.

“Legal risks have upset Lotte’s listing plans,” said Kim Sang-jo, a professor of economics at Hansung University. “In the eyes of foreign investors, South Korea’s corporate governance is a very uncertain issue.”

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