Ar­rest of Lotte Group Chair­man Shin Dong-bin sparks fears of lead­er­ship vac­uum; shares fall

Business World - - WORLD BUSINESS -

SEOUL — The shock ar­rest of the head of South Korea’s Lotte for bribery sent shares in group firms plung­ing on Wed­nes­day as in­vestors fret­ted about a lead­er­ship vac­uum at a chal­leng­ing time for the coun­try’s fifth-largest con­glom­er­ate.

The Seoul Cen­tral Court on Tues­day sen­tenced Lotte Group Chair­man Shin Dong­bin to two years and six months in prison in a case tied to an in­flu­ence- ped­dling scan­dal that has rocked the coun­try’s busi­ness and po­lit­i­cal elite.

Shin had widely been ex­pected to get a sus­pended sen­tence at most.

His de­ten­tion is ex­pected to ham­per both Lotte’s in­vest­ment plans and ef­forts to stream­line, that were aimed at off­set­ting losses in China.

It also leaves the door open for a fam­ily feud to reignite, an­a­lysts said.

“Lotte Group is cur­rently in flux. It’s busi­nesses are mainly do­mes­tic. Shin has at­tempted to ex­pand Lotte over­seas by grow­ing its chem­i­cal busi­ness and re­tail pres­ence in Asia, but that is ex­pected to grind to a halt — at least un­til the ap­peals rul­ing,” said Park Ju-gun, head of re­search firm CEO Score.

Shares in Lotte Corp., the hold­ing com­pany of Lotte Group, tum­bled more than 7% to its low­est in al­most eight weeks, while flag­ship re­tailer Lotte Shop­ping slid 5.5%, mark­ing its low­est point since early Jan­uary.

Lotte Group said af­ter Shin’s ar­rest on Tues­day it will be­gin “emer­gency op­er­a­tions” to “put the minds of stake­hold­ers at rest.” An­a­lysts have said they ex­pect Hwang Kag- gyu, the co- CEO of the South Korean hold­ing com­pany, to take a lead­ing role but that ma­jor de­ci­sions are likely to be put on hold.

Shin’s ap­peals trial is ex­pected to take months.

Lotte had been in the process of trans­fer­ring con­trol of var­i­ous units to Lotte Corp. af­ter it de­buted in late last year, but an­a­lysts said the work is partly done, as Lotte Corp. does not con­trol Lotte Chem­i­cal and key unit Ho­tel Lotte.

Lotte Group ex­pressed con­cern on Tues­day that Shin’s ar­rest could hin­der plans to list Ho­tel Lotte.

Lotte Group has sought a fresh op­por­tu­nity to list Ho­tel Lotte af­ter a planned $4.5-bil­lion IPO was scup­pered in 2016.

Lotte also planned this year to ex­pand its pres­ence in over­seas mar­kets such as Viet­nam and In­done­sia, since Lotte units sus­tained losses in China, where it was forced to close stores as busi­ness suf­fered fol­low­ing “fire in­spec­tions” that were or­dered af­ter a US mis­sile de­fense sys­tem was de­ployed in South Korea on land pro­vided by Lotte. —

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