Lotte buys biggest auto leasing firm

Lotte Group snapped up Korea’s largest car leasing company for 1.02 trillion won ($901.7 million), the company said on Thursday.

Hotel Lotte, the company at the top of Lotte’s complex corporate structure, will take over KT Rental by May. The hotel and resort operator will buy 100 percent stake of KT Rental shares from KT and other investors. KT owns a 58 percent share while other investors hold 42 percent.

The announcement came after Lotte was selected as the preferred bidder last month in an auction that attracted SK Networks and Hankook Tire.

The purchase of the car rental company, Lotte said, is aimed at creating synergy with some of its existing businesses. Diversification of revenue sources also appears to be vital for Lotte as sales at department stores and big discount chains, its two core businesses, continue to suffer from anemic local consumption.

Analysts believe that different scenarios exist to leverage the resources of KT Rental.

Lotte could expand the rental business into home appliances given that the company operates electronics store chain Hi-Mart and Lotte Department Store, which sell such products.

“Rental services are in demand when the economy is slow and people tighten their purse strings,” said Oh Lina, a researcher at E-Trade Securities.

“And Lotte has always kept its eyes on rental business. It considered buying water purification company Woongjin Coway, though it gave that up to focus on Hi-Mart.”

“Lotte’s major retail units such as Lotte Department Store have vast consumer data, and this will benefit rental service that Lotte might launch.”

To create minimum internal friction, Lotte will retain the current staff of the company.

The labor union of KT Rental welcomed the takeover.

“Since the car rental service has a lot of opportunities for robust growth, we can further develop globally with Lotte,” said Ryu Kyung-oh, head of the union.

Analyst Oh predicted that Lotte will have no trouble financing the acquisition.

“Fifty percent will be funded by corporate funds while the rest will be covered by financing and bonds,” Oh said, “Given the group’s financial conditions, this won’t put on too much pressure.”

Lotte is on track to raise several trillion won through different maneuvers including issuing corporate bonds and samurai bonds.

Last month, Lotte Shopping issued corporate bonds to raise 400 billion won, according to multiple local media outlets.

The group also held an investment briefing in Japan ahead of its planned issuance of samurai bonds worth 600 billion won.

Earlier this month, it created a 1 trillion won overseas investment fund in partnership with the National Pension Service.

The financing efforts are also aimed at another deal Lotte is eyeing.

Lotte Shopping submitted a proposal last month to acquire a controlling stake in Italy’s World Duty Free in a deal estimated at 3 trillion won to 4 trillion won.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]