With Lotte Group’s conversion into a holding company being now in progress, Hotel Lotte Co. bought a stake in Lotte Holdings Co. from Lotte International Co. As Hotel Lotte purchased a cross shareholding stake, even a slight change in equity ownership contains various meaning.
According to the data from the Data Analysis, Retrieval and Transfer System (DART) at the Financial Supervisory Service on September 19, Hotel Lotte bought a 0.4 percent stake, or 443,981 shares, in Lotte Holdings owned by Lotte International for 24.2 billion won (US$21.57 million) a day ago. This is the cross shareholding stake created in the process of Lotte Holdings merging its six unlisted affiliates on April 1, the merger due date, and this has to be removed within six months.
There are many interpretations for the reason why Hotel Lotte purchased the cross shareholding stake. Currently, Hotel Lotte is the biggest shareholder of Lotte Holdings, except for chairman Shin Dong-bin. When Lotte Holdings is merged with Hotel Lotte in the future, Lotte Holding’s stakes can be come in useful.
In addition, considering Lotte Group’s business restructuring, it is highly likely that the price of Lotte Holdings shares is considered low. When Lotte Shopping Co. normalizes its performance after its Chinese business restructuring, the real estate becomes securization through Lotte Asset Development Co., unlisted affiliates go public and Lotte Chemical Corp. is included as a subsidiary, Lotte Holdings will be able to get out of the state of undervaluation.
In particular, the inclusion of Lotte Chemical as a subsidiary, which is one of the keys to turn Lotte Group into a holding company, can be fulfilled in the second half of this year. Lotte Group officially announced to include Lotte Chemical as a subsidiary from the early stage of the conversion into a holding company. When to be included is the remaining task.
The investment banking (IB) industry expects that the inclusion will be completed at the end of this year. Yoon Tae-ho, an analyst at Korea Investment and Securities Co., said, “Lotte Holdings needs cash resources to make a new investment and reorganize additional businesses. The current fall in Lotte Chemical share prices decreased the burden of acquisition and Lotte Holdings can expect dividends from Lotte Chemical when the inclusion is completed before the dividend date at the end of the year.”
The inclusion of Lotte Chemical as a subsidiary of Lotte Holdings is forecast to be proceeded with the sale of its stake in financial subsidiaries – Lotte Card Co. and Lotte Capital Co.
Under the current fair trade law, a holding company is prohibited from owning stocks of financial companies. Accordingly, Lotte Holdings has to sell the stake by October next year. The IB industry thinks that Lotte Holdings will pay for the stake in financial companies and additional financial resources and buy a stake in Lotte Chemical from Lotte International.