Lotte Tour Development seeks receivership

Lotte Tour Development, the second-largest stakeholder in the Yongsan International Business District project, filed for court receivership yesterday, and the company’s stock transactions were suspended.

It was a widely expected consequence, since Lotte Tour Development was deeply involved in the collapsing Yongsan project. Many questioned the company’s sustainability after the default of Dream Hub Financial Investment last week. If the court accepts the company’s application, Lotte Tour Developmentwill have to make painstaking efforts to reduce debt. If the court doesn’t approve, the company will be delisted from the stock market and prepare for bankruptcy.

Lotte Tour Development owns Dongwha Duty Free Shop and an inbound travel agency called Lotte Tour. The company is not an affiliate of Lotte Group. Earlier yesterday, a Daesung Accounting Corporation audit report said Lotte Tour Development is hardly expected to survive. “Sustainability of the company depends on normalization of the Yongsan project,” said the report.

Lotte Tour Development holds a 15.1 percent stake in Dream Hub. It has invested more than 170 billion won ($152.5 million) in the Yongsan project, while it owns 5.5 billion won in capital. Last year, the company posted a 36.2 billion won loss.

As of late last year, the company’s total debt stood at 131.4 billion won. The debt-to-capital ratio was 258.7 percent.

According to the company’s financial report on the electronics reporting system of the Financial Supervisory Service, Lotte Tour Development must repay a total of 69.1 billion won by May. It has to pay an additional 39.2 billion won next year.

“If the company fails to return the borrowed money, it would face a serious question about its sustainability,” the report said. Daesung refused to audit the company.

Korea Exchange said yesterday the auditor’s refusal is considered serious enough to delist the company from the stock market. The nation’s securities exchange operator will decide whether to take that action by the end of the month. Although the Seoul City Government announced yesterday it will actively support Korail’s plan to put the project back on track, the difficulties facing private investors of the project like Lotte Tour Development would complicate the process, sources said.

Korail said on Friday it will make serious efforts to save the project and provide financial compensation for 2,200 households that own properties in the project area.

“The prospects for the project are very bleak because there will be no other private investor that would want to participate,” said a construction company executive.

By Song Su-hyun [ssh@joongang.co.kr]