Lotte Group has set out to sell three of its financial units -- Lotte Card, Lotte Non-Life Insurance and Lotte Capital – as part of steps toward adopting a holding company structure.
Under South Korean law mandating a separation of financial and industrial capital, a holding corporation cannot possess financial subsidiaries. This meant that Lotte, which established Lotte Holdings in October 2017, had to let go of its finance units within two years.
|The Lotte World Tower in Jamsil, southeastern Seoul (Lotte Property & Development)|
The preliminary bidding for Lotte Card and Lotte Non-Life Insurance was held on Jan. 30, confirming the list of interested bidders, while the bidding for Lotte Capital is slated for Feb. 12.
A major deal on the table is Lotte Card, which has seen 10 bidders. This includes munitions-to-retail conglomerate Hanwha Group and Hana Financial Group, which have joined as strategic investors, and MBK Partners, a financial investor.
If Hanwha wins the bid, Lotte Card could come under the influence of Korea’s two major conglomerates, creating synergy with both conglomerates, according to market analysts.
Even if Hanwha becomes the new owner of Lotte Card, Lotte is most likely to retain ties to its card company, as it has major links to Lotte’s retail businesses.
During the preliminary bid, Lotte reportedly asked bidders to submit the bidding price and stake purchase ratio -- a move that is widely perceived as reflective of Lotte’s resolve to retain a part of the 93.8 percent stake it owns in the card firm.
Lotte Card may also fall in the hands of Hana Financial Group, one of Korea’s major banking groups. For Hana, purchasing a stake in Lotte Card would ramp up the size of its credit card business and align with Hana Chairman Kim Jung-tai’s stated pledge to raise the share of profits from nonbanking units to 30 percent by 2025.
Among the possible scenarios is a potential merger of Hana Card and Lotte Card. If merged, the two card firms would enable Hana to increase its credit card market share to No. 2 in Korea.
As of the first half of 2018, Lotte Card’s share of the credit and debit card market was 9.57 percent while Hana Card’s share was 8.92 percent. If combined, their market share would sit at 18.49 percent.
This figure would be right behind No. 1 player Shinhan Card, which holds market share of 22.73 percent, and bigger than the shares held by KB Kookmin Card (18.31 percent) and Samsung Card (17.08 percent).
At the same time, private equity firm MBK Partners has reportedly expressed interest in purchasing all three of Lotte’s financial units as a package deal -- an attractive option to Lotte. Its chances of sealing this deal will depend on the total sum that the private equity firm is willing to pay.
Meanwhile, the preliminary bidding for Lotte Non-Life Insurance has seen lukewarm interest, drawing only PEFs as bidders. Major banking groups, including KB Financial Group and Shinhan Financial Group, did not join the bid.
Lotte Capital, on the other hand, has drawn a high level of market interest, with KB Financial Group, Shinhan Financial Group, Woori Financial Group and BNK Financial Group expected to join next week’s preliminary bidding.
With products ranging from installment loans and corporate lending to consumer loans, Lotte Capital is viewed as an attractive acquisition candidate with a steady profit model. In 2017, its net income came to 117.5 billion won ($105 million), up 57.1 percent from three years ago.
By Sohn Ji-young (firstname.lastname@example.org)