Seoul prosecutors raid Lotte
Group, casting new doubt over hotel unit IPO
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[June 10, 2016]
By Joyce Lee
SEOUL (Reuters) - South Korean
prosecutors raided the offices of Lotte Group, the country's
fifth-largest conglomerate, and several affiliates on Friday,
dealing a further blow to its hotel unit's planned IPO, billed as
the world's biggest this year.
Hotel Lotte, one of the affiliates raided, cut the size of the deal
to a maximum $4.5 billion on Tuesday and pushed back the listing to
July after prosecutors launched a bribery investigation into a
About 200 investigators searched 17 locations including group
headquarters in central Seoul and the homes of Chairman Shin
Dong-bin and other key executives, local news agency Yonhap
reported, citing the Seoul Central Prosecutor's office.
The raids mark a fresh bout of turbulence for Lotte, one of the
best-known of the big family-run conglomerates, or chaebol, that
dominate Asia's fourth largest economy, after it was rocked by a
bitter succession feud last year.
A Lotte official, who declined to be identified due to the
sensitivity of the matter, said Friday's raids had not been
expected. It was unclear whether there was a direct connection with
the bribery probe into Hotel Lotte.
Three people with direct knowledge of the matter told Reuters that
Friday's raids were part of an investigation into a possible slush
fund. They also declined to be identified.
One person said prosecutors were also looking into possible breach
of trust related to asset transactions among affiliates. Some
executives had been barred from leaving the country, one of the
The Seoul Central Prosecutors' Office declined to comment.
A Lotte Group spokesman declined to comment on the reason for the
raid, when asked whether it concerned a possible slush fund. He
noted, however, that the situation was difficult given the group's
plans for the IPO and a bid by Lotte Chemical , its biggest unit by
market value, to acquire U.S. chemical maker Axiall Corp.
"While cooperating with the investigation, we will do our best to
operate normally," he said.
A person working on the Hotel Lotte IPO, who declined to be
identified, said bankers were awaiting further information.
"It complicates things considerably, of course," the person said.
"We don't know what they were looking for, what they took."
At the very least, another delay in its listing plans looms large.
According to bourse rules, the deadline for Hotel Lotte to list is
July 27, six months from the preliminary approval for the IPO. If it
needed to refile its prospectus to warn investors about risks from
Friday's probe, which appeared likely, it would probably not be able
to meet that deadline, an exchange official told Reuters on Friday.
A Hotel Lotte spokesman said it was too soon to talk about any
changes in IPO plans as investigations were ongoing.
Despite its name, Hotel Lotte's biggest money-spinner is duty-free
shopping, which accounted for 86 percent of first-quarter revenue.
It is the world's third-biggest operator of shops selling tax-free
luxury goods and cosmetics to tourists.
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The logo of Lotte Hotel is seen at a Lotte Hotel in Seoul, South
Korea, March 25, 2016. REUTERS/Kim Hong-Ji/File Photo
On Friday, dozens of Chinese tourists queued as usual to access elevators to the
flagship Lotte Duty Free outlet in the group's headquarters complex, as TV
cameras waited for investigators to emerge from office doors around the corner.
South Korea is the world's largest duty-free market, and the bribery
investigation is seen as a threat to Hotel Lotte's bid for a coveted duty-free
retail license in downtown Seoul due to be awarded in a bidding process later
FAMILY POWER STRUGGLE
Named after the heroine of an 18th century Goethe novel, Lotte has grown from
its founding in Japan 68 years ago as a maker of chewing gum to a corporate
giant with interests ranging from hotels and retail to food and chemicals. The
group has annual revenue of around $60 billion in Korea.
But last year's highly public power struggle within the founding Shin family
fueled resentment at the grip the chaebol hold over the economy. Some Koreans
also criticized the group's close ties with former colonial ruler Japan.
Shin Dong-bin, the younger son of the group's founder, prevailed over his older
brother to head the group.
Hotel Lotte's planned flotation of around 35 percent of its shares was intended
to bring transparency and improve corporate governance at a group whose
ownership structure is convoluted even by the opaque standards of South Korea's
Shin is currently in the United States attending an event at Axiall Corp, the
Lotte Group spokesman said. He is due to return to South Korea next week.
His estranged brother Shin Dong-joo, who remains a shareholder in several
companies, said in a statement that "huge problems with current management had
once again come to the fore" and called for key shareholders to hold urgent
Shares in Lotte Shopping , whose units Lotte Department Store and Lotte Home
Shopping were raided, fell 1.6 percent on Friday. Lotte Himart, a consumer
electronics retailer, dropped 2.1 percent.
(Additional reporting by Hyunjoo Jin, Se Young Lee in Seoul, Elzio Barreto in
Hong Kong and Ritsuko Ando in Tokyo; Writing by Alex Richardson; Editing by Tony
Munroe and Edwina Gibbs)
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