Hotel Lotte Scales Back Korea’s Largest IPO Amid Bribery Probe

  • Top of range cut to 110,000 won a share from 120,000 won
  • Sale, which could be Korea’s biggest IPO, delayed till July

Lotte Group’s hotel unit delayed what could be South Korea’s largest initial public offering and cut the price after prosecutors in Seoul began an investigation into bribery allegations against executives of the family-run company.

Hotel Lotte Co. reduced the maximum size of the sale to 5.26 trillion won ($4.5 billion) from an earlier target of 5.74 trillion won, the company said in a filing in Seoul on Tuesday. The company, which had planned for the IPO to be completed this month, pushed those plans until July.

For Lotte Group, a business empire with more than 100 trillion won 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. At the high end of its proposed price range, Hotel Lotte’s IPO would be larger than any such deal completed globally this year and the biggest ever in Korea.

Bribery Investigation

Korean prosecutors are investigating allegations that Shin Young Ja -- sister of Lotte Group’s chairman -- and other Lotte executives accepted payments from Jung Woon-ho, head of closely held cosmetics and toiletries maker Nature Republic, in return for preferential treatment in Lotte’s duty free stores, the company’s biggest business segment.

In its filing, Lotte acknowledged the investigation and said an unfavorable outcome could negatively impact the company’s operations. A Nature Republic representative declined to comment on an ongoing investigation, while Shin couldn’t be reached for comment.

Amusement Parks

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 scores of companies.

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.

The sale is being arranged by Mirae Asset Daewoo Co., Citigroup Inc. and Bank of America Merrill Lynch.

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