Lotte Group on Tuesday postponed a plan to list its hotel unit on the nation’s main bourse later this month in the face of growing concerns over an ongoing probe into a lobbying scandal involving former executives of Hotel Lotte, the operator of the nation’s largest duty-free business.

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 Financial Services Commission and the Korea Exchange.

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 a space at its duty-free stores. Both Lotte Group and Shin Young-ja denied the allegation.

Hotel Lotte was to submit documents stating such changes and make a public announcement on delaying its IPO later in the afternoon.

Lotte has already put off a series of overseas deal roadshows, starting in Hong Kong this week. It may take some weeks for Hotel Lotte to carry out overseas roadshows, book building and other procedures. Sources at FSC and Lotte said the trading will be reset to begin around mid-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 in the 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 enough stakes 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.

Such concerns could further dispel investors’ interest in Hotel Lotte, suggesting a possible adjustment in share prices.

Hotel Lotte was expected to secure over 5 trillion won ($4.3 billion), likely making it the largest-ever public offering in the nation’s history after Samsung Life Insurance’s IPO fetched a record 4.9 trillion won in 2010.

In a regulatory filing on May 19, Hotel Lotte said it will offer 47.85 million shares in the range of between 97,000 won to 120,000 won per share.

“In the worst-case scenario, the share price will go below 100,000 won,” said an industry watcher.

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