The Lotte World Mall and tower
South Korean prosecutors widened their probes into Lotte Group, searching the conglomerate’s headquarters and the offices of some of its units, including those of the hotel subsidiary that’s preparing for what could be the country’s biggest initial public offering.
The raid, which began Friday morning, included Hotel Lotte Co. and Lotte Homeshopping, according to a Lotte spokesman, who spoke on condition he not be named as per company policy. The spokesman couldn’t confirm a Yonhap news report that said 200 investigators went to 17 locations related to the group and seven affiliates as part of an investigation involving suspected use of slush funds.
An official with the Seoul prosecutor’s office, who spoke on condition he not be named, confirmed that investigators are pursuing allegations of slush funds and embezzlement by company executives. Yonhap, citing an unnamed prosecutor, reported that homes of some Lotte executives were also searched.
The move deepens the crisis at Lotte Group, a conglomerate with 89 Korean units with than 100 trillion won (USD86 billion) in assets, which has been weathering through a power struggle atop the founding family. The turmoil also comes as Lotte seeks to raise $4.5 billion by listing its hotel unit, a plan that’s already been delayed and scaled back because of a separate investigation into bribery allegations involving company executives.
The IPO may face further delay with the latest investigation, according to Chung Sun Sup, CEO of Chaebul.com, which researches Korea’s family-run conglomerates. “The markets’ view on it is negative now, so the possibility for postponing it is also growing,” he said.
Six of Lotte Group’s eight listed units fell in Seoul trading, losing more than 200 billion won in market value. Lotte Chemical Corp. and Lotte Confectionery Co. closed unchanged.
Additional delays could be costly. Hotel Lotte, which is also the world’s third-largest operator of duty-free shops, earlier this week cut the IPO price range after prosecutors began the bribery investigation, reducing the maximum size of the sale to 5.26 trillion won from an earlier target of 5.74 trillion won. The sale is being arranged by Mirae Asset Daewoo Co., Citigroup Inc. and Bank of America Merrill Lynch.
Besides the investigation, the Japanese-Korean conglomerate has been in turmoil since last year, when a power struggle atop the Shin family erupted into public view. Sohee Kim, Sam Kim, Bloomberg
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