With an arrest warrant for Lotte Group chairman Shin Dong-bin sought by the prosecution, the Lotte Group is unable to hide its embarrassment.
“We expect a wise judgment of the court in charge of issuing the detention warrant,” said Lotte in an official statement on September 26. But a sense of crisis felt inside the group already culminated. “If chairman Shin is arrested, the arrest will put the group’s all business activities including investment, employment and HR management on hold,” said a representative of the Lotte Group.
What is eating Lotte most is the suspension of its management innovation. This is because it has become more likely that a sudden brake will be put on three major reform tasks –- 1) making an improvement to the corporate governance structure via an IPO of Hotel Lotte, 2) discovering a new growth engine through decisive investment and 3) easing a rigid corporate culture. The three tasks were chosen by chairman Shin after a dispute over the managerial right to the group last year.
In particular, an IPO of Lotte Hotel is expected to serve as momentum for comprehensive innovation to such an extent that the IPO will intensively revamp the Lotte Group, excluding the change of the group name.
It was chairman Shin’s plan to lower Japanese shareholders’ equities to 56% from the current 99% by listing Hotel Lotte on the stock market, to cut off a chain of cross-shareholdings by buying equities in subsidiaries such as Lotte Engineering and Construction with funds raised via the IPO and overhaul the group’s corporate governance structure into that of a financial holding company.
But the arrest of chairman Shin will hinder the Lotte Group from taking even the first step –- listing Hotel Lotte on the stock market. The Korea Exchange stipulates that an unlisted company where accounting irregularities such as breach of trust and embezzlement took place must not be allowed to push forward with its IPO for three years. It is expected that it will take at least one year for the court to make the final verdict on chairman Shin after his arrest.
On top of that, taking into consideration the addition of relevant procedures such as the three-year ban, a special audit by the Financial Supervisory Service and a resolution by the Securities & Futures Commission, Lotte will be able to go ahead with an IPO of Hotel Lotte after five years from now.