After Indictments, Lotte Group Seen Kicking Off Charm Offensive

  • Chairman, founding family members charged with corruption
  • Lotte is preparing to unveil reform measures, official says

As Lotte Group’s founding family braces for trial to face charges of embezzlement, tax evasion and breach of fiduciary trust, the nightmare for investors in the South Korean conglomerate may be approaching an end.

On Wednesday, prosecutors announced widely expected indictments against the chairman and his family. Now that’s happened, Lotte can turn its attention toward unveiling sweeping reforms by as soon as next week, a group official said, asking not to be identified because the plan hasn’t been made public. The proposal will probably include a revival of the hotel unit’s initial public offering and some unwinding of cross shareholdings, Korea’s Chosun Ilbo newspaper reported.

That may add weight to the idea that Lotte will move ahead with pledges to become more transparent and regain investors’ confidence. Since prosecutors began raiding Lotte’s offices in June, seven of the group’s nine listed units have fallen, under performing the benchmark Kospi index.

“What ultimately came out of the investigation was lighter than what the markets had been fearing,” said Heo Pil-seok, chief executive officer at Midas International Asset Management in Seoul. “Though we’ll have to see how the legal process develops, the general feeling over this case is that it’s pretty much over.”

Heo isn’t alone in looking at the bright side.

“Lotte is now ready to make a fresh start,” said Park Ju-gun, president of corporate watchdog CEOSCORE in Seoul. “It will push for management to be more transparent, to be a better contributor to society and improve its corporate governance.”

To see a timeline of events about Lotte’s turmoil, click here

Not all investors had been worried. Despite most of the group’s companies falling -- Lotte Food Co. dropped 24 percent since the raids began in June -- the largest listed unit in Shin’s empire, Lotte Chemical Corp., rose 15 percent during the same period.

While investors such as Heo may be moving on, the legal battle for crisis-plagued Lotte’s founding family is just beginning.

On Wednesday, Korean prosecutors indicted Chairman Shin Dong-bin, his older brother and their father, who founded the group, for corruption. In all, prosecutors announced charges against 24 parties, including five members of the founding family, and accused the Shin clan of engaging in financial crimes amounting to almost 280 billion won ($250 million). Court dates haven’t been announced.

It was the latest development for the sprawling conglomerate -- its units generate more than 100 trillion won ($89 billion) in combined annual revenue -- which has been battling crisis after crisis for more than a year.

A ‘Good’ Enterprise

Lotte said that most of the allegations against the chairman aren’t directly linked to him as they involve events during the time his father was running the group. Lotte also said it will explain itself in trial and will continue to strive to become a “good” enterprise.

Lotte’s turmoil began last year, when a family feud erupted into public view after the chairman’s older brother led a failed boardroom coup. Since then, Lotte has faced intensifying regulatory scrutiny and investigations, which took a toll on the group’s business. The conglomerate canceled a potential $4.5 billion IPO of its hotel unit and derailed Lotte’s bid for chemicals-maker Axiall Corp. this year.

Lotte, whose business range from theme parks to chemicals, is the fifth largest of the nation’s family-run conglomerates, known locally as the chaebol, which dominate Korea’s business landscape.

— With assistance by Taku Kato

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