Hotel Lotte IPO being considered: report

Lotte Group is reportedly considering to publicly list Hotel Lotte Co., the de facto holding company of its South Korean operations, amid rising pressure to improve its corporate transparency and circular shareholding structure.

“Given the recent developments, there is a possibility that Lotte will start discussing new measures to improve its governance structure in the long run, including a public listing of Hotel Lotte,” a key group official close to the matter was quoted as saying.

As the fierce ownership dispute between the two sons of the group’s founder continues to escalate, the Korean government has been pressuring it to reform its corporate governance structure, amid growing public disdain for the group’s existing business practices.

If listed, industry analysts expect Hotel Lotte’s market value to reach around 7 trillion won ($6 billion) to 10 trillion won. Of the 80 affiliates of Lotte Korea, only eight are publicly listed while none of the 37 affiliates of Lotte Japan have gone public.

The country’s fifth-largest conglomerate has reportedly discussed the possibility of an IPO several times in the past. However, “the plans did not carry through at the time due to the disapproval of Lotte’s general chairman Shin Kyuk-ho,” according to the official.

Though Hotel Lotte already meets the basic requirements for a public listing, the final decision will depend on the collective interests of the firm’s majority stakeholders.

An IPO, if pursued, could weaken Lotte Japan’s hold over Hotel Lotte and grant Lotte Korea increased independence, by diffusing the more than 90 percent majority stakes held by the group’s Japan-based affiliates in Hotel Lotte.

Led by the younger son Shin Dong-bin, the 12 affiliates of Lotte’s investment unit L Investment Company in Japan collectively owns a 72.65 percent stake in the Korean hotel firm while Japan-based Lotte Holdings possesses another 19.06 percent stake.

While a more leveled shareholding structure could help ease controversy over the national identity of Lotte Korea, it, at the same time, may reduce the founding family’s direct influence over the firm, according to market analysts.

Going public would also cool down controversy over Lotte’s corporate transparency, since a listed company is mandated to submit regulatory filings and undergo routine audits.

“The market will need to prepare for the possible structural changes to come including the conversion of Lotte Shopping into a new holding company and the public listing of Lotte Hotel,” said Dongbu Securities analyst Cha Jae-hun in a report last month.

By Sohn Ji-young (jys@heraldcorp.com)