The prosecution has been tracking down suspicious capital flow between a policy coordination division of Lotte Group and its key units, including Hotel Lotte, Lotte Shopping and Lotte Home Shopping.
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“I heard from the Korean press that Lotte Group is under prosecutors’ investigation on accusations of creating slush funds”, said Shin Dong-joo on Friday in a statement posted on a homepage (http://www.l-seijouka.com) of a group of his supporters.
The Lotte Group, South Korea’s fifth-largest family run conglomerate, or chaebol, has grown from its founding in Japan 68 years ago as a maker of chewing gum.
Last week, prosecutors raided the hotel unit and the house of Shin Young-ja, the head of Lotte Foundation and daughter of group founder Shin Kyuk-ho, on allegations of bribery.
The raids mark a fresh bout of turbulence for Lotte, one of the best-known of the big family-run conglomerates, or chaebol, that dominate Asia’s fourth largest economy, after it was rocked by a bitter succession feud past year. “The markets’ view on it is negative now, so the possibility for postponing it is also growing”, he said.
On Friday, dozens of Chinese tourists queued as usual to access elevators to the flagship Lotte Duty Free outlet in the group’s headquarters complex, as TV cameras waited for investigators to emerge from office doors around the corner.
Additional delays could be costly. Tuesday cut the value of its planned IPO to a maximum 5.26 trillion won ($4.56 billion) from 5.74 trillion won and pushed back its stock exchange listing to July after a bribery investigation was launched against one of its directors.
That would have been a boon for the banks – Mirae Asset Daewoo Co., Citigroup Inc. and Bank of America Merrill Lynch – that had been struggling with a slow year for such deals worldwide. The plan backfired as the father, who founded the group and was then chairman, got sidelined to an honorary position and the eldest son was stripped of group positions. Shareholders voted in favor of Dong-bin and he solidified his control over the confectionery giant in the eight-month inheritance battle with his older brother.
His estranged brother Shin Dong Joo, who remains a shareholder in several companies, said in a statement that “huge problems with current management had once again come to the fore” and called for key shareholders to hold urgent talks. Prosecutors imposed an emergency travel ban on Lotte’s executives, including a vice-chairman surnamed Lee, believed to be the second-most powerful man within the group. Nature Republic has declined to comment on an ongoing investigation, while Bloomberg has been unable to reach the chairman’s sister.
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Some critics raised speculation that the investigation by the Korean prosecution is meant to bring Lotte’s shady governance structure to surface and see if any illegal activities were involved.
