Jun 6, 2016
Hotel Lotte duty free arm defends practices amid bribery probe
Jun 6, 2016
Hotel Lotte Co Ltd's duty free division said on Monday it chooses the products it sells "fairly and objectively" - responding to a bribery investigation that has delayed a roadshow for the South Korean company's $4.9 billion IPO.
Overseas investor meetings were due to begin on Monday in Hong Kong for what is slated to be the world's biggest initial public offering this year, but people familiar with the matter said a need to disclose the investigation had caused the delay.
South Korean prosecutors raided the home of Shin Young-ja, daughter of the Lotte Group's founder and head of the Lotte Foundation, as well as offices of Lotte's duty free operation on Thursday.
According to domestic news agency Yonhap, prosecutors are looking into whether the company and Shin received bribes from local cosmetics company Nature Republic in exchange for store space.
The Seoul Central District Prosecutors' office could not be reached for comment on Monday, a public holiday in South Korea.
Officials at Lotte Foundation, where Shin Young-ja serves as chairwoman, and Nature Republic, could also not immediately be reached for comment.
Lotte Duty Free, the largest division of Hotel Lotte by sales, said that Shin, 73, had stepped back from operations at the company in 2012 and was not in position to influence duty free operations.
"Lotte Duty Free will cooperate fully so that all related doubts can be cleared up through prosecutors' current investigation," it said in a statement sent by text message to Reuters on Monday.
It also said Nature Republic products have been in its stores since 2010, before the alleged bribery activity had taken place.
Via information provided to Reuters, Hotel Lotte will list after June, not this month as planned.
According to local rules, Hotel Lotte must list before the end of July or start its listing process over again.
It is expected to file a prospectus with additional information for investors later on Tuesday, the regulatory source told Reuters, who declined to be identified as the information has not been formally disclosed.
A Lotte Group spokesman on Tuesday declined to give details about possible changes in the listing date until a public filing is made.
HURDLES TO LISTING
Hotel Lotte is the world's third-largest operator of duty free retail outlets, a business that accounted for 86 percent of its first-quarter revenue.
"The problem is, duty free takes up a large portion of Hotel Lotte's business. That important business has been connected with a scandal, and the uncertainty might drive valuations down," said Chung Sun-sup, CEO of research firm Chaebul.com.
Foreign investors are important to the deal's success.
Nearly two-thirds of the IPO shares will be allocated for distribution by global brokerages, with the remainder to be sold through local brokers, according to the offering prospectus.
Hotel Lotte's IPO hit another hurdle in November when it lost a downtown Seoul duty free store license to a competitor.
The loss of the license came amid a highly public family feud over leadership succession at the Lotte group, which spurred criticism over the labyrinthine ownership structure of South Korea's fifth-largest chaebol.
Hotel Lotte's IPO is intended to simplify the group's shareholder structure.
Shin Dong-bin, the younger son of the group's 93-year-old founder and the CEO of the companies that are Hotel Lotte’s main shareholders, cemented control in August, although older brother Shin Dong-joo is engaged in legal proceedings to try and wrest control.
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