Hotel Lotte duty free arm defends practices amid bribery probe - Metro US

Hotel Lotte duty free arm defends practices amid bribery probe

The logo of Lotte Hotel is seen at a Lotte Hotel in Seoul, South Korea, March 25, 2016. REUTERS/Kim Hong-Ji/File Photo
By Joyce Lee

By Joyce Lee

SEOUL (Reuters) – Hotel Lotte Co Ltd’s duty free division said on Monday it chooses the products it sells “fairly and objectively” – responding to a bribery investigation that has delayed a roadshow for the South Korean company’s $4.9 billion IPO.

Overseas investor meetings were due to begin on Monday in Hong Kong for what is slated to be the world’s biggest initial public offering this year, but people familiar with the matter said a need to disclose the investigation had caused the delay.

South Korean prosecutors raided the home of Shin Young-ja, daughter of the Lotte Group’s founder and head of the Lotte Foundation, as well as offices of Lotte’s duty free operation on Thursday.

According to domestic news agency Yonhap, prosecutors are looking into whether the company and Shin received bribes from local cosmetics company Nature Republic in exchange for store space.

The Seoul Central District Prosecutors’ office could not be reached for comment on Monday, a public holiday in South Korea.

Officials at Lotte Foundation, where Shin Young-ja serves as chairwoman, and Nature Republic, could also not immediately be reached for comment.

Lotte Duty Free, the largest division of Hotel Lotte by sales, said that Shin, 73, had stepped back from operations at the company in 2012 and was not in position to influence duty free operations.

“Lotte Duty Free will cooperate fully so that all related doubts can be cleared up through prosecutors’ current investigation,” it said in a statement sent by text message to Reuters on Monday.

It also said Nature Republic products have been in its stores since 2010, before the alleged bribery activity had taken place.


Hotel Lotte is the world’s third-largest operator of duty free retail outlets, a business that accounted for 86 percent of its first-quarter revenue.

“The problem is, duty free takes up a large portion of Hotel Lotte’s business. That important business has been connected with a scandal, and the uncertainty might drive valuations down,” said Chung Sun-sup, CEO of research firm Chaebul.com.

Foreign investors are important to the deal’s success.

Nearly two-thirds of the IPO shares will be allocated for distribution by global brokerages, with the remainder to be sold through local brokers, according to the offering prospectus.

Hotel Lotte’s IPO hit another hurdle in November when it lost a downtown Seoul duty free store license to a competitor.

The loss of the license came amid a highly public family feud over leadership succession at the Lotte group, which spurred criticism over the labyrinthine ownership structure of South Korea’s fifth-largest chaebol.

Hotel Lotte’s IPO is intended to simplify the group’s shareholder structure.

Shin Dong-bin, the younger son of the group’s 93-year-old founder and the CEO of the companies that are Hotel Lotte’s main shareholders, cemented control in August, although older brother Shin Dong-joo is engaged in legal proceedings to try and wrest control.

Hotel Lotte had been due to list this month, but a Lotte Group spokesman said on Saturday a decision had not yet been made on a listing date.

(Additional reporting by Elzio Barreto in Hong Kong; Writing by Tony Munroe; Editing by Edwina Gibbs and Muralikumar Anantharaman)

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