January 22, 2020 / 4:59 AM / a month ago

Breakingviews - Lotte scion gets chance to inspire Korea Inc

FILE PHOTO - Lotte Group Chairman Shin Dong-bin is surrounded by reporters as he makes his way upon his arrival at Gimpo Airport in Seoul, South Korea, July 3, 2016. REUTERS/Kim Hong-Ji/File Photo

HONG KONG (Reuters Breakingviews) - The passing of Lotte’s patriarch sets the stage for a turnaround. Battered shares in the listed units of the South Korean retail-to-chemical conglomerate rallied on Monday after Shin Kyuk-ho died at 98. That may reflect investors’ hopes that his younger son, group chairman Shin Dong-bin, will accelerate a restructuring. A respite from political, legal and family spats gives him room to manoeuvre, and less excuse for delay.

The tycoon, who died on Sunday, launched what became Lotte in 1948 as a chewing gum manufacturer in Japan. It went on to become South Korea’s fifth-largest chaebol. In recent years, however, the group fell victim to diplomatic bad luck and self-inflicted mistakes. In 2017, its Chinese business was eviscerated by Beijing over Seoul’s deployment of a U.S. anti-missile system. A 2019 squabble between Seoul and Tokyo led to a boycott of Lotte’s products, given its corporate presence in Japan. There was an ugly succession struggle between Shin Dong-bin and his older brother - now largely settled - and he was also briefly jailed in a political bribery scandal. The Lotte Corp holding entity has lost 50% of its market value in three years, per Refinitiv data; the nine listed Lotte units trade at two-thirds of book value on average.

Technically little changes strategically with the founder’s passing. His son is already chairman of the group and chief executive of Lotte Corp, the $3.4 billion holding company which sits atop the conglomerate’s South Korean businesses. Yet shares in the latter popped as much as 20% on Monday before falling back, while those of its Lotte Shopping rose 5%. The younger Shin has pledged to shut down unprofitable businesses and has unwound circular shareholdings. But the need for funds to pay his substantial inheritance tax gives him a personal motive to go faster.

Reviving a long-delayed listing of Hotel Lotte, which the company in 2016 hoped would raise nearly $5 billion, would pave the way for a massive restructuring. Mooted plans to then merge the newly listed hotel unit - which holds key stakes in affiliates - with Lotte Corp could create a larger holding company with a cleaner ownership structure. Successful execution might even inspire larger peers, including Hyundai and SK Group, suffering under similar conglomerate discounts, to follow.

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