Shilla-Dongwha Duty Free feud heading to court

The feud between Hotel Shilla and Lotte Tour Development Chairman Kim Ki-byung, the top shareholder of Dongwha Duty Free, over who will run the troubled business has escalated as the two have taken their battle to the courts.

Shilla said on Tuesday that it filed a suit against Kim last month, asking a court to order him to cough up 78.8 billion won ($70 million). The amount is what Kim borrowed from Shilla in 2016, including 71.6 billion won for a 19.9 percent stake, or 358,200 shares in Dongwha and 7.2 billion won in interest and fees. The five-star hotel also asked the court to freeze the 8.65 million shares Kim owns in Lotte Tour Development, operator of the duty-free store. Kim owns 43.55 percent of the company.

The feud dates to May 2013, when Kim sold a 19.9 percent stake in Dongwha to Hotel Shilla for 60 billion won as the duty-free was in liquidity crisis after a massive development project in Yongsan District, central Seoul, failed with losses of 180 billion won. At the time, the parties said that Shilla would be granted a right to exercise a put option in three years, when the company could recoup its investment from Kim.

Shilla now has no intention to run Dongwha, and Kim insists that he doesn’t have the money to repay Hotel Shilla. He instead has proposed to transfer an additional 30.2 percent share in Lotte Tour Development, making Hotel Shilla its largest stakeholder.

“Our sole purpose remains unchanged - to retrieve our investment. We believe Kim is fully capable of pulling the money required to buy back his shares, which is why the company decided to push legal procedures,” said a hotel spokesman.

Dongwha Duty Free now is left without a manager in the declining local-duty free market.

Lotte Tour Development Tuesday said that Hotel Shilla’s legal moves violate the original deal. “The contract clearly states that Kim is to transfer 30.2 percent stake collateral if he fails to reacquire the original 19.9 percent stake by the original due date and that Hotel Shilla will not request any additional payments in this scenario,” Lotte Tour Development said in a statement.

It also asserted that Hotel Shilla’s decision to acquire Kim’s 19.9 percent share was made based on Dongwha’s potential in 2013.

It accused Hotel Shilla for violating the contract now that the market is murky. Beijing halted group tours to Korea in March as part of its economic retaliation against the deployment of the U.S. antimissile system.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]