Lotte Group is moving to create two separate holding companies ㅡ each in Korea and Japan ㅡ to dispel concerns about its vague governance systems

November 9, 2013 Leave a comment

2013-11-08 17:10

Two heirs set to divvy up Lotte

Group may set up holding firms each in Korea, Japan
By Yi Whan-woo
Lotte Group is moving to create two separate holding companies ㅡ each in Korea and Japan ㅡ to dispel concerns about its vague governance systems, industry sources said Friday. The measure came amid the Korean government’s toughening stance on the practices of inter-affiliate shareholding in chaebol, which enables owners and their family members to control the entire group with only small stakes.Analysts say Lotte’s affiliates in Korea and Japan may be subject to organizational restructuring aimed at helping the two sons of the group founder Shin Kyuk-ho, 91, effectively control them.
In a recent report, Dongbu Securities analyst Chae Jae-hyun said the two sons have been purchasing stakes in affiliates this year.
Of the two sons, Shin Dong-bin, 58, chairman of the Lotte Group in Korea, acquired 43.4 billion ($40.8 million) worth of stocks this year alone. They include 1.96 percent stake in Lotte Food, 0.3 percent stake in Lotte Chemical, 5.34 percent stake in Lotte Confectionary, 5.52 percent stake in Lotte Chilsung and 1.49 percent stake in Lotte Insurance.
The other son, Shin Dong-joo, 59, vice chairman of the Tokyo-based Japan Lotte Holdings, also purchased stocks worth billions of won between August and October. As a result, his stake in Lotte Confectionary rose to 3.61 percent, up from 3.48 percent.
“The amount of stocks purchased by Shin Dong-joo is far less compared to the amount acquired by Shin Dong-bin. They appear to be competing to raise their stakes. That means more than just stock buying,” Chae said. “It is speculated that Lotte will be divided into two holding companies in Korea and Japan, respectively, before their father passes away.”
He said the group’s plan to list Lotte Hotel, Asia’s third largest hotel chain, on the Korean stock market is part of its governance restructuring. According to the Fair Trade Commission in May, 51 of Lotte’s 77 affiliates are engaged in cross-shareholding. “Lotte Hotel has been at the center of such a complicated governance structure,” Chae said.
Shin Dong-joo is currently the highest shareholder of Lotte Hotel with a 19.2 percent stake.
The hotel has an 8.83 percent stake in Lotte Shopping, the group’s flagship business unit.
Each of the two companies has stakes in Lotte Food, Lotte Aluminum, Lotte International, Lotteria, Lotte Capital and several other subsidiaries.
“Even experts have difficulty in fully understanding the cross-shareholding structure between Lotte Hotel, Lotte Shopping and other subsidiaries,” another analyst said. “We believe Lotte’s planned listing of Lotte Hotel will shed light on the complicated inter-affiliate shareholding systems and its financial structure.”
Lotte dismissed these speculations.
“It’s true that we are considering listing Lotte Hotel, and our cross-shareholding structure is very complicated,” said Song No-hyun, a Lotte official. “That, however, doesn’t mean that our governance structure will change. We’ve successfully expanded businesses under the current system, and we will maintain this for the time being.”

yistory@koreatimes.co.kr

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