Lotte Mart finds buyer for some Chinese stores

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Lotte Mart finds buyer for some Chinese stores

Lotte Mart has sold off 21 stores in Beijing to Wumei Holdings.

The company announced Thursday that it has agreed to sell 87.38 percent of its Beijing operation for 1.42 billion yuan ($224.2 million). Lotte will maintain a 5 percent share in the business to ensure a smoother management transition for the stores, it said.

“External evaluation companies concluded that our Beijing office was worth between 1.1 billion and 1.4 billion yuan - the deal [with Wumei] fits in this price range,” Lotte Mart said in a statement, implying that the branches were not sold at a giveaway price.

Having launched in China in 2007, Lotte Mart had six local subsidiaries in charge of its branches, divided by region. Beijing was Lotte Mart’s second-largest office among the six.

A major retail company based in Beijing, Wumei Holdings operates more than 900 branches under the brand “Wumart,” generating around $8 billion annually, according to Lotte.

The company added that discussions to sell the other offices were also underway. “We’re expecting to soon sign a stock purchase agreement for the office that overlooks Shanghai and Jiangsu,” it said in a statement. This subsidiary is the biggest among the six, with 74 branches under its wing.

The Beijing deal is a breakthrough for Lotte, which has seen talks fall through multiple times since the company announced in September that it would sell stores in China.

Lotte’s problems in China began in March last year when 87 of its 110 branches were shut after the company was hit with unofficial economic retaliations following its approval of a land-swap deal that paved the way for the installment of the U.S.-led Thaad antimissile system in Korea. Including the 690 billion won ($639 million) it spent to keep the stores afloat last year, Lotte Group’s losses in China are estimated to reach 2 trillion won.

Several foreign retail companies were reported to have shown an interest in Lotte Mart’s stores, but the deals always fell through for a number of reasons including failure to reach an agreement on contract terms and concerns from buyers on the company’s unpopularity with the Chinese government.

Another barrier was the obligation to receive approval from the government to finalize the sell-off. In such a context, the deal was considered a milestone and a symbolic sign that marks the end to China’s apparent economic retaliations against Korea.

“The success in selling Lotte Mart’s Chinese operations is visible proof of the Chinese government’s withdrawal of Thaad retaliations,” said Son Yoon-kyung an analyst at SK Securities.

However, this is only the start of Lotte’s recovery from the fallout of the Thaad decision. Construction of the 3 trillion won Lotte Town project hasn’t progressed since 2016 and its duty free business is still waiting on the return of Chinese group tours.

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