Amid growing uncertainty Hotel Lotte delays IPO

Hotel Lotte on Tuesday postponed a plan to list itself on the nation’s main bourse this month in the face of growing concerns over an ongoing probe into a lobbying scandal involving the firm’s former executives.

Hotel Lotte, the operator of the nation’s largest duty-free business, said in its report to the Financial Services Commission that it would delay its IPO to next month. It also said it would lower the price range to between 85,000 won and 110,000 won per share, from 97,000 won to 120,000 won per share proposed on May 19. As previously planned, Hotel Lotte will offer 47.85 million shares, it added.

With the change in the IPO value, Hotel Lotte is expected to secure funds between 4 trillion won to 5.2 trillion won, about 15 percent less than previously expected.

The company didn‘t give a new date for the IPO.

According to sources, the decision came after a meeting with market regulators earlier in the day where they shared views that it would be difficult to complete necessary procedures before trading Hotel Lotte shares on the Korea Exchange on June 29.

Companies proposing an initial public offering are obliged to report important changes, such as prosecution investigations, to the FSC and KRX.

Shin Young-ja, the eldest daughter of Lotte founder Shin Kyuk-ho, and other executives are suspected of receiving kickbacks from a Korean cosmetics firm head in exchange for offering space at its duty-free stores. Both Lotte Group and Shin Young-ja denied the allegation.

Lotte has already put off a series of overseas deal roadshows, starting in Hong Kong this week. It may take some weeks for the company to carry out overseas roadshows, book building and other procedures. Sources at FSC and Lotte said the trading would be rescheduled to begin around end of July.

“We are considering listing the shares within the next month at the earliest, but nothing has been confirmed yet,” an official said.

The planned listing of Hotel Lotte, the de facto parent company of the group’s operation in Korea, is at the center of Lotte Group chairman Shin Dong-bin’s reform drive. Amid a bitter family feud, he vowed to improve transparency of Lotte’s governance structure and separate his family‘s influence from management.

The listing is also crucial for the chairman as he seeks to cement his power in the group. He has secured management rights, but still lacks a big enough stake to control the group, said Yang Hyun-mo, analyst at eBest Securities.

Others say Lotte has no choice but to delay the plan, considering the negative impact of the prosecution’s probe into the chairman’s sister’s allegation to Hotel Lotte’s market capitalization.

Shin Young-ja serving as a sitting board member of the hotel will be seen as a major risk factor for investors, they added. Shin’s alleged involvement in the bribery scandal could also frustrate the company’s attempt to regain the operational license it lost in a bidding race last year.

Hotel Lotte, the world‘s third-largest duty-free operator, generates more than 80 percent of its sales from its tax-free stores.

By Cho Chung-un (christory@heraldcorp.com)