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Japan’s Investment Firm Behind Lotte Group
Lotte of Support
Japan’s Investment Firm Behind Lotte Group
  • By Jung Min-hee
  • August 6, 2015, 03:45
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The Fair Trade Commission (FTC) has set out to discover the ownership structure of Lotte’s overseas subsidiaries, which have a major stake in the Lotte Group. The commission has discovered that an investment firm initialed “L” is the actual governing company of the Lotte Group of Korea. Now, many are wondering about the true nature and governing structure of company “L”, and speculate that the truth of Kwangyunsa and Lotte Holdings of Japan will be brought to light.

The Japanese investment firm “L” is the absolute major shareholder, with a 72 percent stake in Hotel Lotte, which is at the highest point of the Lotte Group's ownership structure. Lotte Holdings of Japan also owns a 19 percent share in the group. Accordingly, the two companies are practically in control of the entire Lotte Group through Hotel Lotte. However, these companies are hiding behind a veil, because the equity structure of the investment firm “L” is unknown.

The FTC has asked the Lotte Group to report its current governing structure by Aug. 20. However, the group has started considering whether it has to respond to the data request, which was made by a consultation meeting at the National Assembly and the FTC on Aug. 6, on a legal basis.

There are two primary reasons for not responding to the request. First, even the highest-ranking executives of the Lotte Group of Korea do not know the exact ownership structure of Kwangyunsa and Lotte Holdings of Japan. Second, it is taboo that any executive of the Lotte Group asks the founder’s family about stockholder equity.

It is not yet clear if Lotte will provide data to the FTC about the governing structures of its subsidiaries outside of Korea.

Every year on April 1, the FTC releases a list of companies with total assets amounting to more than 5 trillion won (US$4.27 billion) and the names of their heads that are subject to a ban on  cross-shareholding and debt guarantee practices.

There is also much speculation about whether the FTC will point out General Chairman Shin Kyuk-ho or Chairman Shin Dong-bin as Lotte Group’s head to dominate its major subsidiaries next year.

The FTC’s decision on the head will be based on de facto control rather than the nominal share ratio of major subsidiaries. For instance, the actual ruler of the Samsung Group is Chairman Lee Kun-hee.

The FTC believes that it would be premature to consider Vice Chairman Lee Jae-yong as the practical head of the Samsung Group, even though he has more shares in Samsung Electronics and some subsidiaries than Chairman Lee Kun-hee.

Unlike the Samsung Group, Lotte Group General Chairman Shin Kyuk-ho owns more stakes in its major subsidiaries, including Lotte Holdings of Japan and Hotel Lotte, than Chairman Shin Dong-bin. However, the FTC can change the Lotte Group's ruler from General Chairman Shin Kyuk-ho to Chairman Shin Dong-bin in the public announcement on April 1 next year, if both the Lotte Group and the FTC agree that Chairman Shin Dong-bin has more influence or substantial control of the group based on the same theory with Samsung Group.

Until now, the FTC has left the selection of actual rulers entirely to relevant companies. However, the head of the Lotte Group can change if the FTC thinks that Lotte’s internal disturbance causes market uncertainty in the long term, asks the Lotte Group to change the actual ruler, and the group accepts it.