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Lotte pledges to list hotel, cut circular shareholding

Lotte Group chairman Shin Dong-bin on Tuesday bowed to public pressure and announced a plan to reform the conglomerate’s complicated circular shareholding structure by this year to ensure transparency.

Offering a public apology over his family’s feud over the succession of the 90 trillion-won business empire, chairman Shin also said he would push for the listing of Hotel Lotte, the controlling tower of 80 Lotte affiliates in Korea.

The listing plan is seen by analysts as the chairman’s strategy to weaken the influence over Lotte operations in Korea by the Japanese holding company -- the largest shareholder of the hotel.

Lotte chairman Shin Dong-bin talks to the press on Tuesday at Lotte Hotel in central Seoul. Yonhap
Lotte chairman Shin Dong-bin talks to the press on Tuesday at Lotte Hotel in central Seoul. Yonhap

“The listing has been studied since last year. We will need the stakeholders’ approval for further details but I will put all efforts into pushing ahead with the IPO as soon as possible,” Shin said at the news conference held at Lotte Hotel in downtown Seoul.

Hotel Lotte owns 34.64 percent of Lotte International, 38.34 percent of Lotte Engineering and Construction, 31.07 percent of Lotte Corp. and many more, and is dubbed as the de facto holding company of Lotte Korea. However, about 99.28 percent of Hotel Lotte is known to be owned by Lotte Holdings in Japan alongside its 37 Japanese affiliates. This led to suspicions that it is heavily controlled by Lotte Japan, which generates only one-twentieth of Lotte Korea’s sales.

“The IPO will vary the stakeholders of Hotel Lotte and thus lessen the impact of Lotte Japan’s stake in the company,” Shin said.

Lotte Group will establish a holding company in order to remove the company’s 416 cyclical shareholdings, and will start by dissolving 80 percent of the links by the end of the year.

“We will set up a task force and a committee to improve the governance structure. This will require about 7 trillion won, which is 2-3 times Lotte’s annual net profit. Dissolving the ties with the financial affiliates of the company will be more than painful. We fear that this will compromise research and development as well as job creation,” Shin said.

“But this is the best for the nation’s economy and the public, which is deeply concerned about our governance structure and transparency in business operations,” he said.

The dramatic announcement came 15 days after the fraternal competition between Dong-bin and his elder brother Shin Dong-joo over the helm of Lotte in both Korea and Japan met with public criticism.

The government and the political parties have argued whether it was OK for the founding family to have full control over the vast business empire spanning across Asia and the U.S. when it has less than 2.5 percent of total shares in the conglomerate.

The Financial Supervisory Service, the National Tax Service and the Fair Trade Commission are investigating Lotte’s governance structure and possible tax evasion.

The ruling and opposition political parties are seeking ways to regulate chaebol, including summoning Shin and fellow business leaders to a public hearing during the National Assembly’s annual audit session and urging National Pension Service to intervene in the dispute.

Lotte also faced financial damage after the stock price plummeted. In addition, rumors are mushrooming that the company would lose several business opportunities including the lucrative license to run urban duty-free stores that generate trillions of won in sales every year.

The leadership of Lotte will be discerned on Aug. 17 at the shareholders' meeting in Japan.

“I am sorry for having created the stir and caused public concern,” Dong-bin said.

By Bae Ji-sook (baejisook@heraldcorp.com)
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