Uncrossed Wires
The Lotte Group has removed cross shareholding ties with 349 other companies so far, which accounts for 84 percent of the total, accelerating the improvement of its corporate governance. The work has been done three months after Chairman Shin Dong-bin instructed the company to make its governance structure more transparent. Accordingly, the listing of Hotel Lotte, the de facto holding company of Lotte’s Korean operations, on Korea’s stock market is expected to happen sooner.
The Group announced on Oct. 27 that Hotel Lotte bought shares of Lotte Shopping, a key retail unit, and two other affiliates, removing their cross shareholding ties with 209 other companies. Accordingly, there are only 67 cross shareholding ties, or 16.1 percent, left after it cut cross shareholding links by 33.7 percent in Aug. and 50.2 percent this month.
Hotel Lotte bought a 12 percent stake in Lotte Aluminum owned by Lotte Shopping, a 3.5 percent stake in Daehong Communications owned by Fujifilm Korea, and a 0.9 percent stake in Fujifilm Korea owned by Lotte Confectionery Co. The total number of shares were 127,666, worth 100.8 billion won (US$88.93 million). After the Lotte Group launched a task force on governance reform on Aug. 26, Chairman Shin Dong-bin purchased a 1.3 percent stake in Lotte Confectionery Co. on Oct. 28, untangling 140 out of the 416 cross shareholding relations among its affiliates.
Kang Sun-ah, an analyst at KB Investment & Securities Co., said, “As Hotel Lotte bought shares of Lotte Aluminum, the group immediately eliminated about 200 cross shareholding ties tangled up from Hotel Lotte to Lotte Shopping. If Hotel Lotte considers becoming the group’s holding company, it needs to secure more than 40 percent of shares in Lotte Aluminum, which is an unlisted company. This is the measure that can solve even this problem.”
Also, Hotel Lotte purchased shares of Daehong Communications owned by Fujifilm Korea, getting rid of its cross shareholding structure with Fujifilm Korea. Kang said, “Although the group sold only shares of non-controlling shareholders, such as Lotte Shopping-Lotte Aluminum and Fujifilm Korea-Daehong Communications, among the total cross shareholding ties in Lotte Group, most cross shareholding ties were eliminated. When Chairman Shin Dong-bin pledged to remove more than 80 percent of cross shareholding ties by the end of the year, he must have considered the fact.”
Industry experts think that the importance of a 7.86 percent stake and a 3.93 percent stake of Lotte Shopping, which are owned by Lotte Confectionery and Lotte Chilsung, respectively, will stand out in the medium to longer term. This is because the speed of the Lotte Group’s governance reform completion is highly likely to be decided depending on how the group will deal with the stakes. When Lotte Confectionery and Lotte Chilsung sell shares of Lotte Shopping, they also can expect positive effects of cash inflows.