Lotte Group Chairman Shin Dong-bin on Tuesday pledged to improve the transparency of the group’s management and to restart processes for the public listing of its hotel unit which had been stalled due to a lengthy probe into irregularities at the Korean-Japanese retail giant.

In his first official appearance since his indictment last week, the Lotte chief delivered a public apology for causing trouble and unveiled a major restructuring plan for building up a “new Lotte” rooted in transparency and accountability.

Shin Dong-bin, alongside four other family members, was indicted last Wednesday on charges of embezzlement, tax evasion and corporate malpractice worth 375.5 billion won ($335 million) following a four-month investigation. The trial is expected to begin next month. 

“We deeply recognize the gravity of our situation and public concerns, and will make efforts to build up a new Lotte,” Shin said during a press conference held at the Lotte Hotel in central Seoul.

Lotte Group will establish a new compliance committee directly managed by the chairman, which brings in outside officials to monitor potential wrongdoings at Lotte’s affiliates, Shin said. The new system will apply to all Lotte affiliates with a market value exceeding 1 trillion won.

In the aftermath of the recent corruption scandal, the group is also retracting its stated vision to raise its annual revenue to 200 trillion won by 2020 to focus instead on qualitative growth that prioritizes corporate social responsibility.

Lotte is also downsizing its policy headquarters, originally founded in 2004 as an overarching body to coordinate business decisions across the retail-to-chemicals giant. The move is aimed at passing on more independence and accountability to each of the group’s business units, Shin said. 


Looking ahead, Lotte reiterated its drive to improve the group’s murky governance structure defined by complex shareholding ties, and to align the group’s unit under a holding company structure.

As part of such efforts, Lotte plans to “swiftly complete” the initial public offering of Hotel Lotte, the de-facto holding company of Lotte’s operations in Korea. Hotel Lotte had scrapped its IPO plans in June after Korean prosecutors began a large-scale probe into irregularities at the group. 

Lotte Group’s public relations director Lee Jong-hyun said that the group will need to first consult the terms of the IPO with regulators and other advisors before setting a concrete timetable.

In addition to the Hotel Lotte IPO, valued at $4.5 billion, Lotte plans to seek a stock listing of its “strongest affiliates,” namely Korea Seven, which operates the convenience store chain 7-Eleven, Lotte Data Communication Co. and Lotteria.

Over the next five years, Lotte will invest 40 trillion won into pursuing strategic M&As, new capital investments and research and development. The new investment quota is significantly higher than Lotte’s current annual investment of around 6-7 trillion won, Lee explained.

In terms of employment, Lotte plans to hire 70,000 new recruits, mostly new college graduates, by 2021. It will also transfer 10,000 temporary workers at Lotte affiliates into permanent positions by 2019 — 5,000 from retail, 3,000 from food and 2,000 from finance and other sectors.

Following Lotte’s announcement of its business agenda on Tuesday, the stock price of Lotte’s publicly-traded units surged on expectations of the group’s coming actions.

Shares of Lotte Confectionery surged by 7.76 percent to close at 194,500 won, alongside share price hikes at Lotte Chilsung Beverage Co., Lotte Shopping, Lotte Food and Lotte Himart Co. and Lotte Tour.

The core drivers of the share price hike are Lotte’s stated plans to list Hotel Lotte and to realign its units into a holding company structure, said Samsung Securities analyst Nam Ok-jin in a report.

The top beneficiaries of Lotte’s future moves are Lotte Shopping and Lotte Confectionery, as the former holds sizeable stakes in Lotte’s listed and unlisted units that could become valuable through the Hotel Lotte IPO, Nam said.

Similarly, Lotte Confectionery holds various stakes in various unlisted Lotte affiliates in addition to its own value as a company, which is set to play a critical role in the group’s efforts to change its governance structure, Nam said. 

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