SEOUL • Lotte Group shelved what may have been a US$4.5 billion (S$6 billion) initial public offering (IPO), the world's biggest so far this year, for its hotel unit after widening investigations pushed the South Korean conglomerate deeper into crisis.
Hotel Lotte Co decided to hold off on the IPO after talking to arrangers and considering both "internal and external issues", the company said in a statement yesterday, a day after the parent group signalled the deal would be shelved. Despite the decision, the company will proceed with plans to expand its duty-free business, it said.
It's the latest blow to hit the conglomerate, which has 89 Korean units with more than 100 trillion won (S$116 billion) in assets. With the group still reeling from a feud that tore its founding family apart, Lotte sank into deeper turmoil last week as Korean prosecutors widened their probes into the business empire amid allegations of slush funds and embezzlement.
"This crisis can be viewed as a problem of governance and lack of transparency at Lotte Group," said Mr Kim Ho Joon, director of the governance research department at Daishin Securities. "In the long term, Lotte needs to fundamentally improve its corporate governance."
In addition to the derailment of an IPO, the aftermath of the raids has also seen Lotte Chemical Corp, the conglomerate's biggest listed unit, bowing out of bidding for US-based Axiall Corp as well as a slide in share prices for group firms.
Assets in Singapore dollars
The scandal highlights the potential risks of investing in opaque South Korean conglomerates like Lotte, analysts said. "Legal risks have upset Lotte's listing plans. In the eyes of foreign investors, South Korea's corporate governance is a very uncertain issue," said economics professor Kim Sang Jo of Hansung University.
All of Lotte's eight listed units fell in Seoul, losing a combined 1.1 trillion won in market value.
As to Lotte, shelving the IPO will add to the struggles it's faced since last year. Besides the probes, Hotel Lotte has been seeking to make up for losing a licence last November for its key duty-free business, the company's biggest revenue source.
Shares of Lotte group firms tumbled yesterday. Lotte Shopping and Lotte Confectionery fell 5.4 per cent and 6 per cent respectively, while Lotte Chemical Corp was 3.9 per cent lower. The broader market dropped 1.9 per cent.
Then there is the power struggle atop the dynasty that founded the group, the fifth-largest of Korea's family-run conglomerates - locally known as the chaebol - that dominate the nation's corporate landscape.
A year ago, Lotte Group chairman Shin Dong Bin faced a coup attempt by his older brother and their patriarch father. The plan backfired as the father, who founded the group and was then chairman, got sidelined to an honorary position and the eldest son was stripped of group positions.
The older brother has since attempted multiple challenges to Mr Shin Dong Bin's authority, but to little avail.
Mr Shin Dong Joo, the older brother, said in a statement last week that this is the biggest crisis that Lotte has ever faced and called for the company to give a thorough explanation of the situation.