SEOUL, Aug. 28 (Korea Bizwire) — South Korean retail giant Lotte Group is set to list its hotel and duty free operator Hotel Lotte, a hidden jewel owned by Japanese shareholders, taking the first critical step to untangling its murky governance structure following a bitter family feud over control of the conglomerate.
Local brokerage houses and foreign investment banks are drooling over its initial public offering (IPO) after the nation’s fifth-largest conglomerate based in Korea and Japan earlier this month said the group will seek to list its shares on the Seoul bourse, which is expected to be followed by other key affiliates.
The envisioned listing is part of Lotte’s move to bolster its managerial transparency and simplify its complicated governance structure after the ownership feud, involving group chairman Shin Dong-bin and his older brother Dong-joo, angered consumers and prompted government-led investigations into the family-controlled group.
Lotte said it will draw up a shortlist from 13 candidates on Monday and select a key IPO manager in early September. It has listed only eight units, or 9.9 percent of its 81 affiliates, the fewest among the country’s top 10 conglomerates.’
“We will push for the listing process as soon as possible depending on the market situation. It is not yet clear when it will be completed because the process needs approval from the bourse operator and shareholders (in Japan),” a spokesperson for Lotte Group said, without elaborating because of the ongoing process.
The company said Hotel Lotte is expected to have a market capitalization of around 10 trillion won ($8.5 billion) when it lists, but market watchers estimate the deal could reach as much as 20 trillion won, considering its large stakes in affiliates and strong earnings.
Its financial and tangible assets are valued at more than 11 trillion won, according to an analysis by HI Investment & Securities.
Sales from duty free shops stood at 3.94 trillion won last year, a four-fold surge from 2010 on a rising influx of Chinese tourists. It ranks top in the nation’s duty-free industry with a 60 percent market share.
Established in 1973, the hotel holds an 8.83 percent stake in Lotte Shopping, a 12.99 percent stake in Lotte Aluminum and an 18.77 percent stake in Lotteria. Meanwhile, Lotte Holdings, the group’s Tokyo-based holding firm, holds a 19.07 percent stake in Hotel Lotte, while group investment units called L Investment Company hold a combined 72.65 percent stake.
Market watchers say the key to the deal will be how the beleaguered conglomerate can weaken the Japanese holding firm’s dominance of Korean businesses through the public offering. Lotte could issue a large number of new shares or sell existing shares, but such a plan needs approval from Japanese shareholders.
“Listing of Hotel Lotte and turning it into a holding company is an inevitable step to resolve the complicated corporate structure and wrap up the succession process,” Kim Dong-yang, a researcher at NH Investment & Securities, said. “The focus will be on the size of the new share issuance and stock ownership of Japanese shareholders.”
Following a market debut, Hotel Lotte could merge with Lotte Shopping Co., a key listed retail unit, to pave the way for establishing a holding company to control its affiliates, Kim said.
All of this couldn’t come at a better time for the Korea Exchange (KRX) and brokerage houses, which have been looking for the next big pie after Samsung listed two of its key affiliates in late 2014.
On Thursday, Kim Won-dae, the director of the main board KOSPI, met with senior Lotte officials to discuss ways to list Hotel Lotte as well as other key affiliates, the KRX said, noting 20 of its unlisted units are qualified for getting on board.
To enter the main bourse, applicants should have over 30 billion won in equity capital and 70 billion won of annual sales for three years, along with other requirements.
“The meeting (with Lotte officials) was held to discuss ways to support the public offering of its affiliates,” a KRX spokesperson said. “We gave a report that analyzed the listing qualifications of Lotte affiliates because the current listing rule is complicated.”
The KRX said it is considering simplifying the screening process to facilitate its listing, using a “fast-track” system that cuts the review period to about a month.
Among the unlisted subsidiaries, convenience store chain 7-Eleven, fast food chain Lotteria, and Lotte Data Communication, a service provider, are considered as potential IPO candidates, market watchers say.
“We don’t exclude the possibility of listing additional companies following Hotel Lotte, but at this point, we haven’t made any specific plans for other affiliates,” the Lotte spokesman said.