The prosecution’s investigation into the Lotte Group on September 20 is expected to enter a fierce legal dustup after summoning and grilling its chairman Shin Dong-bin.
But industry experts analyze that serious aftereffects will remain regardless of the result of the trial as both chairman Shin and the Lotte Group sustained great damages during the prosecution’s investigation over the past 103 days. “Chairman Shin’s dream to grow Lotte into one of the top ten global business groups in Asia can be delayed for more than ten years,” said a high-ranking representative of the Korean business world.
First of all, the most painful fact is that an IPO of Hotel Lotte was indefinitely put off after the prosecution’s probe in June. An IPO of Hotel Lotte means more than securing investment funds. It was chairman Shin’s plan to raise people’s awareness of Hotel Lotte as a Korean company by listing the company on the stock market and elevate managerial transparency by gradually weakening cross-subsidiary shareholdings.
After a dispute over management rights between chairman Shin and his brother in August last year, Shin made an announcement to apologize to people and laid out a plan to reform the group. The core of the plan was to list Hotel Lotte on the stock market.
It seems virtually impossible to resume an IPO of Lotte Hotel while a trial of chairman Shin proceeds. This is because owner risk may lower the value of the company and the Board of Directors of the Lotte Holdings in Japan is expected not to approve IPO work until chairman Shin returns. The Lotte Holdings in Japan owns about 93% equities in Hotel Lotte.
It also seems that chairman Shin’s dream to expand overseas markets via aggressive M&As is being shattered. Chairman Shin has grown the Lotte Group by way of a size expansion strategy. At the beginning of this year, the chairman suggested to employees a blueprint to grow into one of the ten biggest business groups in Asia.
Lotte is already falling behind in completion in the distribution sector, a main business sector of the group. The business results of Lotte Shopping accounting for a third of group sales on the decline every year.
“As Lotte Shopping is in the prosecution’s cross hairs with its business in China among others pegged as a channel to raise slush funds, even if chairman Shin returns to the group leadership, the Lotte Group will feel a lot of burdens in aggressively going global,” said a representative of the Korean economic world. In the case of Lotte Chemical, another Lotte flagship company, lately the company has been performing well with a boom in its business but the boom may end unexpectedly. Its plan to take over Axiall Corporation in the US was already dropped. So, analysis says that these facts brought the chemical company bigger performance volatility.