Although Lotte Group chairman Shin Dong-bin is behind bars, Hotel Lotte has successfully raised more than 1 trillion won (US$894.05 million) of funds from the corporate bond market during the past five months. However, the 10- to 15-year corporate bonds that have been recently issued are attached with strict mandatory redemption conditions due to the risks related to the group chairman and sluggish sales of the duty free business.
According to investment banking (IB) industry sources on July 29, Hotel Lotte issued a total of 160 billion won (US$143.05 million) worth of private equity bonds, including 140 billion won (US$125.17 million) in 15-year bonds and 20 billion won (US$17.88 million) in 10-year bonds, on July 25-26.
Hotel Lotte has issued long-term corporate bonds in the private equity market on a monthly basis since February this year. The company has issued 1.07 trillion won (US$956.64 million) worth of private equity funds in total so far. It raised the funds at a fast pace in order to open hotels and duty free stores in foreign countries.
In particular, 300 billion won (US$268.22 million) worth of the corporate bonds with the maturities of 10 to 15 years have mandatory redemption conditions attached. When bonds receive a rating lower than “A+” from more than one credit rating agency, they have to be repaid early. Hotel Lotte currently has an AA0 credit rating, which is two stages lower than the A+ rating. The company imposed the option to attract investors who felt pressure by the long-term bonds because of owner risks. Lotte Group chairman Shin Dong-bin was arrested in February after being convicted of bribery.
Initially, Lotte Group was trying to reorganize the Lotte Japan-centered governance structure to Lotte Korea by merging its chemical and distribution subsidiaries after listing Hotel Lotte on the main bourse. However, the listing of Hotel Lotte has been postponed indefinitely.
Hotel Lotte, which is a de facto middle holding company of Lotte Group, serves as a medium of bonding between South Korea and Japan. As the listing of Hotel Lotte, which is the key part for the conversion into a holding company, has been delayed, Lotte Group’s governance structure reform has been slowed down.
It is still unclear whether Hotel Lotte can be listed or not. Kim Ho-kyung, an analyst of NICE Information Service, said, “Hotel Lotte will push ahead with the initial public offering (IPO) again in the medium term but uncertainties still exist considering low performance of the duty free division and unfavorable business environments.”
ICE Information Service said that the investment expansion will make Hotel Lotte harder to improve its financial structure. The company is attracting funds to make an investment in hotels and duty free shops abroad so it will not be able to repay the loans in a short period of time.