Hotel Lotte on Monday officially canceled its initial public offering scheduled for next month, as a large-scale embezzlement probe into the group and its affiliates deepened with emerging reports of confirmed wrongdoings.

“We are pushing back our IPO to a later time and cancelling all remaining procedures in consideration of Lotte’s current circumstances and investor interests,” Hotel Lotte said in an emailed statement.

“Listing the company is an integral part of reforming Lotte Group’s corporate governance structure, which will lower stakes held by Japanese companies and diversify Lotte’s stakeholders. We will continue to closely cooperate with our advisers and regulators to determine future actions,” it said.

The announcement came after more than 200 investigators from the Seoul Central Prosecutor’s office raided 17 Lotte offices last Friday, including its headquarters in central Seoul and the residence of Lotte chairman Shin Dong-bin, Lotte founder Shin Kyuk-ho and key executives, over allegations of embezzlement and the creation of a multibillion won slush fund.

The raids were initially sparked by a bribery investigation into the group’s duty-free business operated by Hotel Lotte, the de facto holding company of Lotte’s operations in Korea.

The investigation had already prompted Hotel Lotte to push back its listing from June to July and scale back its proposed price range last Tuesday.

“We physically cannot meet next month’s deadline to complete the Hotel Lotte IPO given the current circumstances and the additional disclosures that need to be made,” Lotte Group spokesperson Choi Min-ho told The Korea Herald.

According to KRX regulations, the deadline for Hotel Lotte to complete its IPO is July 27, six months from the preliminary approval date.

“We will have to restart the listing process from scratch at a more fitting time in the future,” he said, noting that the group was planning to restart the listing process “as fast as it can.”

The listing of Hotel Lotte had been at the top of Lotte’s agenda for this year, as it stands at the center of chairman Shin Dong-bin’s reform agenda aimed at improving the group’s murky governance structure and building funds and momentum for Lotte’s future businesses.

By offering 47.85 million shares, Hotel Lotte was expected to secure up to 5.2 trillion won ($4.5 billion) in new funds through the IPO, expected to be the world’s biggest offering this year.

Hotel Lotte is scheduled to hold an emergency meeting with the Korea Exchange within this week, after which it will disclose any new developments, Choi said.

Probe deepens, with confirmed cases

The ongoing investigation has put Lotte Group into its worst crisis to date, as prosecutors track down suspicious capital flow between a policy coordination division of Lotte Group and its key units, including Hotel Lotte, Lotte Shopping and Lotte Home Shopping.

During the searches and seizures that began Friday, some 240 investigators have confiscated truckloads of computer hard disks, accounting books and asset transfer records, the Seoul Central Prosecutor’s office said. It has also imposed an emergency travel ban on Lotte’s executives.

Since the raids, local media outlets have begun to release reports of confirmed wrongdoings, including that Lotte chairman Shin created a slush fund in the process of acquiring base materials for Lotte Chemical, according to local daily Asia Today.

The prosecution has discovered that Shin embezzled funds through paper companies in Hong Kong and Lotte’s Japanese affiliates while importing the chemicals, it reported.

Investigators have also seized evidence that Shin embezzled money while making heavy investments into Lotte Shopping’s Chinese business, considered a failure that led to some 3 trillion won in losses, Asia Today said.

“The prosecution has been carrying out an investigation on Shin Dong-bin’s alleged criminal activities since the beginning of the year and a portion of them have been confirmed,” a high-level prosecutor was quoted as telling the newspaper.

According to a report by Hankyoreh, another Korean daily, the prosecution has spotted evidence that three company officials, in charge of managing the funds of chairman Shin Dong-bin and Lotte founder Shin Kyuk-ho, systematically destroyed evidence of tax evasion at a number of Lotte affiliates.

The ongoing investigation has taken a major toll on Lotte’s business projects for the year -- in addition to the delayed hotel unit IPO, Lotte’s chances of winning back a crucial business license to continue operating its second-largest duty-free outlet in Seoul are now slim.

Lotte Chemical, which makes up another main part of the group’s businesses alongside retail, also withdrew its bid to acquire U.S. chemicals producer Axiall Corp. last Friday, just days after its proposal for the buyout.

“We decided to withdraw from the bid given the current difficulties faced by Lotte Group and the highly competitive nature of the bid,” Lotte Chemical said in a statement released Friday.

By Sohn Ji-young (jys@heraldcorp.com)