Seoul prosecutors raid Lotte Group, casting new doubt over hotel unit IPO (updated)

LOTTE Himart

11/06/2016 05:21

* Prosecutors search 17 locations - Yonhap 
    * Lotte Chemical withdraws from bidding for Axiall Corp 
    * Three sources say raids tied to "slush fund" probe 
    * Hotel Lotte, planning IPO, among those raided 
    * Group is one of biggest of South Korea's "chaebol" 
 
 (Adds Lotte Chemical's withdrawal of Axiall bid in paragraph 3) 
    By Joyce Lee 
    SEOUL, June 10 (Reuters) - South Korean prosecutors raided 
the offices of Lotte Group, the country's fifth-largest 
conglomerate, and several affiliates on Friday, dealing a 
further blow to its hotel unit's planned IPO, billed as the 
world's biggest this year. 
    Hotel Lotte, one of the affiliates raided, cut the size of 
the deal to a maximum $4.5 billion on Tuesday and pushed back 
the listing to July after prosecutors launched a bribery 
investigation into a director.  urn:newsml:reuters.com:*:nL4N18Z07S 
    Late on Friday, the group's Lotte Chemical Corp  011170.KS  
unit said it withdrew from the bidding for U.S.-based Axiall 
Corp  AXLL.N , which went to a rival suitor for $2.33 billion, 
citing "the difficult situation Lotte has faced in Korea 
recently and heated competition".  urn:newsml:reuters.com:*:nL4N1922A1 
    About 200 investigators searched 17 locations including 
group headquarters in central Seoul and the homes of Chairman 
Shin Dong-bin and other key executives, local news agency Yonhap 
reported, citing the Seoul Central Prosecutor's office. 
    The raids mark a fresh bout of turbulence for Lotte, one of 
the best-known of the big family-run conglomerates, or chaebol, 
that dominate Asia's fourth largest economy, after it was rocked 
by a bitter succession feud last year. 
    A Lotte official, who declined to be identified due to the 
sensitivity of the matter, said Friday's raids had not been 
expected. It was unclear whether there was a direct connection 
with the bribery probe into Hotel Lotte. 
    Three people with direct knowledge of the matter told 
Reuters that Friday's raids were part of an investigation into a 
possible slush fund. They also declined to be identified.  
    One person said prosecutors were also looking into possible 
breach of trust related to asset transactions among affiliates. 
Some executives had been barred from leaving the country, one of 
the sources added. 
    The Seoul Central Prosecutors' Office declined to comment. 
    A Lotte Group spokesman on Friday declined to comment on the 
reason for the raid, when asked whether it concerned a possible 
slush fund. He noted, however, that the situation was difficult 
given the IPO plans and Lotte Chemical's Axiall bid. 
    "While cooperating with the investigation, we will do our 
best to operate normally," he said. 
     
    LISTING DEADLINE 
    A person working on the Hotel Lotte IPO, who declined to be 
identified, said bankers were awaiting further information. 
    "It complicates things considerably, of course," the person 
said. "We don't know what they were looking for, what they 
took." 
    At the very least, another delay in its listing plans looms 
large. 
    According to bourse rules, the deadline for Hotel Lotte to 
list is July 27, six months from the preliminary approval for 
the IPO. If it needed to refile its prospectus to warn investors 
about risks from Friday's probe, which appeared likely, it would 
probably not be able to meet that deadline, an exchange official 
told Reuters on Friday. 
    A Hotel Lotte spokesman said it was too soon to talk about 
any changes in IPO plans as investigations were ongoing. 
    Despite its name, Hotel Lotte's biggest money-spinner is 
duty-free shopping, which accounted for 86 percent of 
first-quarter revenue. It is the world's third-biggest operator 
of shops selling tax-free luxury goods and cosmetics to 
tourists. 
    On Friday, dozens of Chinese tourists queued as usual to 
access elevators to the flagship Lotte Duty Free outlet in the 
group's headquarters complex, as TV cameras waited for 
investigators to emerge from office doors around the corner. 
    South Korea is the world's largest duty-free market, and the 
bribery investigation is seen as a threat to Hotel Lotte's bid 
for a coveted duty-free retail licence in downtown Seoul due to 
be awarded in a bidding process later this year. 
     
    FAMILY POWER STRUGGLE 
    Named after the heroine of an 18th century Goethe novel, 
Lotte has grown from its founding in Japan 68 years ago as a 
maker of chewing gum to a corporate giant with interests ranging 
from hotels and retail to food and chemicals. The group has 
annual revenue of around $60 billion in Korea. 
    But last year's highly public power struggle within the 
founding Shin family fuelled resentment at the grip the chaebol 
hold over the economy. Some Koreans also criticised the group's 
close ties with former colonial ruler Japan. 
    Shin Dong-bin, the younger son of the group's founder, 
prevailed over his older brother to head the group. 
    Hotel Lotte's planned flotation of around 35 percent of its 
shares was intended to bring transparency and improve corporate 
governance at a group whose ownership structure is convoluted 
even by the opaque standards of South Korea's conglomerates. 
    Shin was in the United States attending an event at Axiall 
Corp, the Lotte Group spokesman said on Friday. He was due to 
return to South Korea next week. 
    His estranged brother Shin Dong-joo, who remains a 
shareholder in several companies, said in a statement that "huge 
problems with current management had once again come to the 
fore" and called for key shareholders to hold urgent talks. 
    Shares in Lotte Shopping  023530.KS , whose units Lotte 
Department Store and Lotte Home Shopping were raided, fell 1.6 
percent on Friday. Lotte Himart  071840.KS , a consumer 
electronics retailer, dropped 2.1 percent. 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
GRAPHIC: How Hotel Lotte's planned IPO compares     http://tmsnrt.rs/1XyV3fO 
Hotel Lotte bribery probe casts cloud over lucrative duty free 
licence bid     urn:newsml:reuters.com:*:nL4N1905BD 
FACTBOX on Lotte Group      urn:newsml:reuters.com:*:nL4N1920LV 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Additional reporting by Hyunjoo Jin, Se Young Lee and Tony 
Munroe in Seoul, Elzio Barreto in Hong Kong and Ritsuko Ando in 
Tokyo; Writing by Alex Richardson; Editing by Edwina Gibbs and 
Muralikumar Anantharaman) 
 ((jungyoon.lee@thomsonreuters.com; +82 2 3704 5609; Reuters 
Messaging: jungyoon.lee.thomsonreuters.com@reuters.net)) 
 
Keywords: LOTTE GROUP PROBE/