Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

You can check out any time you like, but you can never leave.

Embattled South Korean conglomerate Lotte Group must have the lyrics of the Eagles' iconic song ringing in its ears as it revives plans to float Hotel Lotte Co., the country's largest operator of hotels and duty-free stores.

Hotel Lotte was forced to shelve its $4.5 billion IPO in June after its founding family got caught up in a corruption investigation that put investors off the deal. The offer was to have been the nation's biggest in decades, trumping the $4.3 billion listing in 2010 of Samsung Life Insurance Co.

But the charges of embezzlement against Lotte Group's chairman and his relatives aren't the only challenges the firm will face as it prepares to welcome new shareholders.

Korea's IPO market has hardly been setting the world on fire. In a year when volumes are down globally, activity in Asia's fourth-largest economy is even more lackluster.

Going Down
South Korean IPO volumes have been falling since 2014 and are well off their 2010 highs
Source: Bloomberg

The handful of deals have been uninspiring. Doosan Bobcat Inc., a unit of South Korea's biggest construction equipment maker, had to trim its share-sale plans by 60 percent to drum up demand. That makes the $2 billion listing in the works from Samsung Biologics Co. the nation's biggest in six years.

Also, despite its name, Hotel Lotte is essentially a duty-free store operator that runs an unprofitable hotel business on the side.

Room With a View
Hotel Lotte makes a large portion of its operating income from duty-free stores
Source: Bloomberg
Note: Data is for the quarter ending June 30. Trade refers to Hotel Lotte's duty-free store business.

That makes it vulnerable. Hotel Lotte's duty-free unit has been doing well thanks to the huge popularity of Korean cosmetics, especially with mainland Chinese. But relying on tourists from across the Yellow Sea can be risky, with Beijing prone to limiting visitors when politics gets in the way. Reports authorities are ordering travel agents to curb cheap packages to South Korea from next month has hammered cosmetics stocks, for example.

While fickle issues such as those may be surmountable, there's also the bigger problem of probes into Lotte Group and its spiderweb of companies. Korea's fifth-largest family-run conglomerate has a staggering 67 cross holdings spanning confectionery, construction, finance, oil and amusement parks. There's much that needs untangling and that takes money. Proceeds from the hotel float would have gone a long way in funding a cleanup.

Considering precious few chaebol heads are actually ever convicted -- SK Group Chairman Chey Tae-won's 2013 prison sentence was a rarity -- Lotte's family members may yet get off lightly.

For now, though, it looks like Hotel Lotte may be extending its group stay.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net