Lotte $4.9 Billion IPO Faces Fresh Setback on Bribery Probe

  • Hotel Lotte said to be pushing back roadshow schedule
  • Korean prosecutors raid Hotel Lotte last week as part of probe

Bribery Probe Hits Hotel Lotte IPO

Lotte Group’s hotel unit is facing delays with its initial public offering after the South Korean company and a member of its founding family became embroiled in a bribery probe, people familiar with the matter said, in the latest setback for what may be the world’s biggest IPO this year.

Hotel Lotte Co., which had planned to begin meeting with potential overseas investors on June 6, is pushing back the roadshow with no new timetable in sight, the people said on Saturday, asking not to be identified because the information is private. A Lotte Group spokesman confirmed the schedule is being adjusted and that prosecutors raided Hotel Lotte last week, though the representative declined to say whether the two events were connected.

For Lotte Group, a business empire with more than 100 trillion won ($85 billion) in assets, the investigation adds to the turmoil that’s plagued the Japanese-Korean conglomerate since last year, when a power struggle atop the founding Shin family erupted. The probe also comes as the hotel unit plans its IPO to raise as much as 5.7 trillion won, larger than any such deal completed globally this year and the biggest ever in Korea.

For more on the challenges facing the Lotte IPO, click here.

The Korea Exchange is willing to work with Hotel Lotte to proceed with the IPO in the near term should the company want to do so, said Noh Byoung Soo, a spokesman at the exchange. An investigation in itself won’t significantly delay the IPO or seriously hurt the value of the company as long as Hotel Lotte isn’t found at fault, Noh said.

Korean prosecutors are investigating whether Shin Young Ja -- one of the chairman’s sisters -- and other Lotte executives took kickbacks in return for giving cosmetics firm Nature Republic preferential treatment in Lotte’s duty-free stores, according to Yonhap. Both Shin and Hotel Lotte deny the allegations, according to Yonhap.

The group spokesman confirmed prosecutors raided and searched Hotel Lotte late last week as part of a bribery investigation involving the company and Shin.

Shin, who sits on Hotel Lotte’s board and heads the Lotte Foundation charity, couldn’t be reached and calls to the prosecutors’ office in Seoul weren’t answered. Nature Republic is considering options such as bringing in a management specialist to help normalize the business, a representative said in a text, declining to comment further.

Duty Free

The scandal involves Hotel Lotte’s biggest business as duty-free sales accounted for 86 percent of total revenue last quarter. Lotte, the world’s third-largest operator of duty-free shops, has been seeking to make up for losing a license for a Seoul outlet last year.

The company is also the largest hotel group operator in Korea and manages the Lotte World amusement parks that compete with Samsung Group’s Everland.

Beyond its operations, Hotel Lotte owns stakes in scores of affiliates, including shares in Lotte Chemical Corp. and Lotte Shopping Co., making it a key unit that allows the group to control a collection of 89 companies in Korea alone.

Control over the group has been the focus of a dispute in the Shin family. The feud erupted into public view last summer when the current chairman, Shin Dong Bin, faced a coup attempt from his older brother and their patriarch father. The plan backfired as the father, who founded the group and was then chairman, got sidelined to an honorary position and the eldest son was stripped of group positions. The older brother has since attempted multiple challenges to Shin Dong Bin’s authority but to little avail.

Hotel Lotte’s IPO is being arranged by Mirae Asset Daewoo Co., Citigroup Inc. and Bank of America Merrill Lynch.

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