In a bid to raise funds worth 7 trillion won (US$5.92 billion) to get rid of its cross-shareholding structure and become a holding company, the Lotte Group has decided to push ahead with initial public offerings (IPOs) to list shares of its major affiliates, including Hotel Lotte, on the main Korea Exchange, accelerating the corporate governance improvement.
Hotel Lotte announced on Aug. 19 that the group will send out a request for proposal (RFP) to 10 local and overseas brokerages to hire managers for the IPOs. Through the internal review on proposals submitted, Hotel Lotte will choose candidates by Aug. 31. Then, it will select the final list in early Sept. after presentations.
In addition to Hotel Lotte, a de facto holding company to be listed, the Lotte Group will also consider pushing for the IPOs of other major affiliates such as fast-food chain Lotteria, convenience store chain 7-Eleven, and IT services provider Lotte Data Communications Company.
Previously, Lotte Group Chairman Shin Dong-bin pledged to unwind its complicated equity structure and become a holding company in a public apology on Aug. 11 after the family feud. Shin said, “We will reduce the existing cross-shareholding arrangements between affiliates of the group by more than 80 percent by the end of this year. In the medium and long term, we will transform the group into a holding company in order to completely eliminate the cross-shareholding arrangements.”
However, huge sums of money worth 7 trillion won (US$5.92 billion) are required to sweep away the cross-shareholding arrangements between the complicated Lotte affiliates and become the holding company. The figure is equivalent to two to three years of net profits of the Lotte Group.
For the changeover to the holding company that takes an astronomical amount of money, the IPOs of major affiliates of the group are the easiest way to secure funds. However, the group needs to persuade shareholders in order to do so.
The Lotte Group is expected to convince its shareholders that some of the funds raised by the IPOs will be used in the changeover to the holding company and the rest to maximize profits of shareholders.
Also, the group is also considering setting a mandate to hire outside directors for all affiliates with more than 300 billion won (US$253.7 million) in assets. It is the groundwork to win trust from shareholders and secure the group’s transparency. Since it takes time to prepare the IPOs, the group plans to hire outside directors first in order to bolster corporate transparency.
More than 90 percent of Lotte Group’s unlisted affiliates have more than 300 billion won (US$253.7 million) in assets.
There are only eight affiliates of the Lotte Group listed, including Lotte Shopping and Lotte Chemical. All of the IPOs of its affiliates have been made by Chairman Shin Dong-bin so far. Earlier, the group decided to list Lotte Data Communications Company in the second half of this year. However, it has been delayed due to the family feud about winning control over the group.