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

LOTTE Himart

10/06/2016 05:46

* Prosecutors searching 17 locations - Yonhap 
    * Hotel Lotte, planning IPO, among those raided 
    * Group is one of biggest of South Korea's "chaebol" 
    * Analysts say Hotel Lotte IPO may be further delayed 
 
 (Adds details, background, affiliate share prices) 
    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 
    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 probe marks 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. 
    Hotel Lotte, Lotte Department Store and Lotte Home Shopping 
confirmed that raids were taking place at their offices. A Lotte 
official, who declined to be identified due to the sensitivity 
of the matter, said Friday's raids had not been expected. 
    Three people with direct knowledge of the matter told 
Reuters that the 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. 
    The Seoul Central Prosecutors' Office declined to comment. 
    Lotte Group declined to comment on the reason for the raid, 
when asked whether it concerned a possible slush fund. 
     
    DUTY-FREE PLANS 
    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." 
    A Hotel Lotte spokesman said it is too soon to talk about 
any changes in IPO plans as investigations are 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 morning, 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 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. 
    Last year's highly public power struggle within the group's 
founding Shin family drew widespread criticism. 
    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 chaebol. 
    Shin Dong-bin, the younger son of the group's founder, 
prevailed over his older brother to head the group. 
    Shin is currently in the United States, people familiar with 
the matter said. 
    "Lotte will likely delay the IPO a bit further and wait for 
the public outcry to die down a bit," said Park Ju-gun of 
corporate analysis firm CEO Score. 
    "Shin Dong-bin needs to do the IPO because of not only his 
promise last year but also because Lotte Group continues to 
expand and needs to raise money from the outside," Park said. 
    Shares in Lotte Shopping  023530.KS , which counts Lotte 
Department Store and Lotte Home Shopping among its units, fell 
1.3 percent on Friday. Lotte Himart  071840.KS , a consumer 
electronics retailer, dropped 3.1 percent.    
   
 
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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 Elzio 
Barreto; Writing by Alex Richardson; Editing by Tony Munroe and 
Edwina Gibbs) 
 ((jungyoon.lee@thomsonreuters.com; +82 2 3704 5609; Reuters 
Messaging: jungyoon.lee.thomsonreuters.com@reuters.net)) 
 
Keywords: LOTTE GROUP PROBE/