Due to Stricter Regulations on Holding Companies
The Lotte Group is in talks with Woori Bank to sell off the stakes in its financial subsidiaries.
According to investment banking (IB) industry sources on July 29, Lotte has started exchanging opinions with domestic finance holding companies and banks to dispose of the stakes Lotte Holdings Co. own in its financial subsidiaries, including a 93.8 percent stake in Lotte Card Co. and a 25.6 percent stake in Lotte Capital Co. as well as Lotte Insurance Co. The group’s holding company needs to divest itself of the stakes in financial subsidiaries by October next year.
Lotte’s stakes in financial subsidiaries are put up for sale because the group introduced a holding company system on October 1 last year. Under the current fair trade law, an ordinary holding company cannot hold stakes in companies that are engaged in the financial or insurance businesses. Lotte Holdings Co. now runs 12 financial subsidiaries, including Lotte Capital, Lotte Card, eB Card Co. and Gyeonggi Smartcard Co.
The Lotte Group announced in early January a plan to remove new cross shareholding relations, which were created in the process of turning into a holding company, as well as the existing ones. It got rid of the cross shareholding arrangements by completing the mergers of six unlisted subsidiaries, including Lotte International Co. and Daehong Communications Inc. The group had more than 90,000 of cross shareholding relations in 2013 but it completely removed them through the sales of stakes and mergers after the conversion into a holding company last year. In other words, the group will complete the holding company system when it sells off its stakes in financial subsidiaries.
The Lotte Group was planning to set up an intermediary financial holding company that would take over its stakes in financial subsidiaries. But it scrapped the plan after Fair Trade Commission Chairman Kim Sang-jo announced a halt in pushing for the introduction of intermediary financial holding companies.
Market watchers speculated that the group might arrange a stake swap between its financial subsidiaries and the affiliates of Japan’s Lotte Holdings Co., in light of a high synergy effect between distribution companies and financial businesses.
However, the group could not promote stake swaps between its financial subsidiaries and the units under Japan’s Lotte Holdings due to the eligibility of Japan’s Lotte Holdings as the majority shareholder of domestic financial companies. The Korean financial authorities now apply stricter standards to the evaluation of the eligibility of majority shareholders. Furthermore, a financial firm that holds local customers’ information cannot be sold to a foreign company.
As Lotte Group is less likely to exchange its stakes in financial subsidiaries with Japan’s Lotte Holdings, it is now considering selling them to a third party. Woori Finance Holdings is one of the potential acquirers. Woori Bank, which is pushing to adopt a holding company system, is expected to acquire Lotte’s stakes in its financial subsidiaries in package in order to secure competitiveness as an integrated financial group. In particular, Woori Finance Holdings can create a synergy with Lotte Group by securing big data on the group’s L-point when it takes over Lotte’s stake in its financial subsidiaries. Lotte Holdings can also continue to engage in card promotional campaigns.