Amid probe, Lotte Group works on overhaul
After indicting Lotte founder Shin Kyuk-ho and his two sons, prosecutors released Thursday the investigation results on the family’s corporate malpractice and corruption charges. “We will strictly refer to investigation results in finding ways to improve the company,” said another Lotte spokesman.
The reform plan is a signal that Chairman Shin Dong-bin is moving to establish a “New Lotte”- a catchphrase he has emphasized since he took the helm last year.
The core of the plan was restructuring the group’s organization by listing Hotel Lotte on the stock market, of which Japanese stakeholders account for 99.3 percent. If Hotel Lotte goes public, the figure may decline to 56 percent. Its plan to go public was halted in June when prosecutors began investigating Shin’s family.
Hotel Lotte is the de-facto holding company of Lotte Group’s Korean subsidiaries, meaning if Shin fails to break the current structure, he might be held under Japanese shareholders’ influence in terms of management control. This is why Shin has constantly shown enthusiasm for Hotel Lotte’s IPO, even after the legal investigation began.
The task is also crucial for the company’s finances, because the money earned from new stakeholders, possibly equivalent to 1.8 trillion won ($1.6 billion), can be used to fund acquisitions of hotels, duty-free, retail and food companies, along with developing the petrochemical sector.
However, the chances of Hotel Lotte finalizing enlistment this year is slim. According to Korea Exchange’s rules on Initial Public Offerings, a company with records of accounting fraud, corporate malpractice and embezzlement cannot go public for three years after charges are disclosed. Until the central court rules on Shin’s allegations of malpractice and embezzlement, the possibility of Hotel Lotte undergoing screening for an IPO is considerably low.
“Even if Hotel Lotte succeeds in registering for enlistment during Shin’s trial, the examination process will be complicated and lengthy, as there was no similar case in the past which we could refer to,” said Kim Sung-tae, head of IPO screening at Korea Exchange. “Even if Shin steps down as Hotel Lotte’s CEO, his management control on the company as the group’s chairman will be taken into consideration.”
Hotel Lotte has to repeat the procedures it underwent before June, starting with a preliminary examination. Even if the company undergoes the “fast-track” process, which grants shorter steps for IPOs of large companies, it will take at least four months for Hotel Lotte to go public.
Hotel Lotte’s duty-free business is also problematic. Last year, the Lotte Duty Free World Tower branch lost its operation license according to Korea Customs Service’s decision. The branch placed a bid this month when the government once again said it would to give issue licenses for which results will be released in December. If the World Tower branch fails again, the public offering price of Hotel Lotte will fall lower than current expectations.
Lotte says it will also enhance the company’s transparency and simplify its byzantine organizational structure that is rooted in cross-shareholding among subsidiaries. Last October, it reduced cross-holding shares by 84 percent when Hotel Lotte purchased shares from three subsidiaries.
“Plans to improve corporate culture are also under development,” said a Lotte spokesman.
The most difficult task is reviving the group’s image, which has been tarnished significantly by the family feud over control and a long probe by prosecutors. To counteract, Lotte will invest in social responsibility activities. On Wednesday, Hotel Lotte acquired the Bobath Memorial Hospital that specializes in rehabilitation for children and the elderly.
“Through the facility’s infrastructure and human resources, we will operate volunteer programs for people in need,” said a Hotel Lotte spokesman.
BY KOO HUI-LYUNG [email@example.com]