South Korea’s fifth-largest conglomerate Lotte Group has completely removed its cross-shareholding ties amid the unprecedented absence of chairman, passing the first step for an emergency management system. However, the group has mounting challenges as it recently faced suspicion that it sought favors in winning a government license to construct Lotte World Tower after controversy over bribery to curry favors to win a license to open a duty free shop and China’s retaliation over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile system on the Korean Peninsula.
Lotte Corp., the holding company of Lotte Group, held an extraordinary shareholders’ meeting on the 31st floor of Lotte World Tower in Jamsil, Seoul, on Feb. 27 and its shareholders gave a go-ahead to Lotte Group’s plan of merging six unlisted companies – Lotte GRS, Fuji Film Korea, Lotte Logistics, Lotte International, Daehong Communications and Lotte IT Tech – under the holding entity. In particular, Japan’s Lotte Holdings, a de facto holding company of Lotte Group in South Korea and Japan, also casted a vote for the proposal, supporting Lotte Corp.
Once the merger is completed by April 1, Lotte Group will completely remove its cross-shareholding and mutual investment ties within the group. Lotte had 416 circular shareholding loops as of 2014, the most among the country’s top 10 conglomerates. However, the number of its shareholding ties decreased to 11 after Lotte Corp. was officially established in October and sold shares in its two subsidiaries in November last year. With the completion of the merger, Lotte Corp. will have 54 affiliates, which is more than half of the group’s total of 92 affiliates.
The stock ownership ratio of Lotte Corp’s affiliated person will also increase to as much as 60.9 percent, strengthening its amicable stakes. This is because the share of treasury stocks, which don’t have the voting rights, will reach 37.3 percent so the remaining shareholders’ rate of shares that have the voting rights will increase.
Lotte Group’s emergency management system got through one crisis with the approval of the merger. However, it still faces a lot of challenges. In order to complete the holding company system, Lotte needs to merge its remaining chemical affiliates and list Hotel Lotte, which is a key to improve the governance structure of Lotte in South Korea. But, it will be postponed due to the court arrest of group chairman Shin Dong-bin after he was found guilty in the first trial for bribery in an influence-peddling scandal that ousted the country’s former president Park Geun-hye last year.
In addition, doubts have recently risen over the group seeking favors in winning a permission to establish Lotte World Tower from the former Lee Myung-bak administration so Lotte will be under investigation by the Board of Audit and Inspection in the near future. After the extraordinary shareholders’ meeting on Febbruary 27, Lotte Group Vice Chairman Hwang Gak-kyu said, “Many shareholders attended on the meeting so we had a great outcome.” However, he left the conference hall without answering reporter´s questions about the suspicion over Lotte World Tower.