Jailing of chairman throws Lotte into crisis
Planned IPO for hotel unit now up in the air
SEOUL/HONG KONG: The surprise jailing of Lotte Group chairman Shin Dongbin on bribery charges has thrown one of South Korea’s biggest chaebols into further disarray.
Now up in the air: a planned initial public offering for Lotte’s hotel unit; its hope of selling its network of stores in China; a restructuring plan for the group; and the family feud between Shin Dongbin and his elder brother for control of the conglomerate founded by their 95-yearold father.
The company’s operation of a duty-free store at Lotte World Tower in Seoul is also at stake, as the Korea Customs Service said yesterday that it would decide whether to cancel the licence needed to operate the store after legal reviews.
“It’s the biggest crisis since the founding of Lotte,” Chung Sun-sup, the head of corporate analysis firm chaebul.com in Seoul. “The growth of Lotte’s business could be stagnant.”
Shin Dong-bin was sentenced to 30 months in prison on Tuesday after being found guilty of charges stemming from Lotte’s decision to give 7 billion won ($6.5 million) to a confidante of President Park Geun-hye, allegedly in exchange for government favours in providing a license to operate duty-free stores. Prosecutors had sought a fouryear jail term.
Shin becomes the second head of a top conglomerate to be imprisoned for seeking to curry favour with impeached President Park by bribing one of her confidantes.
The de facto head of technology giant Samsung Electronics Co Ltd, Jay Y. Lee, was jailed last year in a related trial, but he was unexpectedly released last week on appeal in a ruling that was perceived as a setback to government pledges to curtail the power of the nation’s corporate elite.
“The court may have been tougher on Shin than expected because of Lee’s release, with judges “defending themselves after the judiciary faced backlash over the decision to release Jay Y.,” said Park Ju-gun, president at corporate research firm CEOScore in Seoul.
For Lotte, a conglomerate with businesses including chemicals and hotels, the decision comes after a sweeping reorganisation last year that created a holding company for many of the groups’ assets and consolidated Shin’s control.
The revamp is still underway with plans to list shares of Hotel Lotte and absorb it along with cash cow Lotte Chemical Corp into the holding company.
The chairman’s conviction would likely give an edge to elder sibling Shin Dongjoo in a long-simmering dispute: Under Japanese law, the Lotte chairman would now have to step down as head of the company’s Tokyo-based unit Lotte Holdings Co Ltd, where the elder Shin owns 33.3% of voting rights.
Shin Dong-joo called for the “prompt resignation and dismissal” of his younger brother.
In a statement posted on his Japan-based company’s website, the elder sibling also said “fundamental reforms in corporate governance are an indispensable and urgent topic for Lotte Group.”
“Lotte’s Korea business is safe from a battle over management control, but there are risks remaining in the Japan business since Shin Dong-bin has to step down,” said Park of CEOScore.
“Shin Dong-bin’s jailing also puts a spotlight on his top lieutenant, Lotte Corp co-chief executive Hwang Kag-gyu, who likely will be left to run the conglomerate,’’ he said.
Shin Dong-bin, who turned 63 yesterday, was also fined seven billion won. He can appeal the ruling with the Seoul High Court.