South Korean hotel company IPO delayed, reduced

(Lotte Hotel Moscow exterior)

Less than three weeks after announcing an initial public offering expected to be one of the largest of the year, Lotte Group’s hotel unit is delaying the IPO as well as reducing it's size.

Hotel Lotte Co. reduced the maximum size of the sale to 5.26 trillion won ($4.5 billion) from an earlier target of 5.74 trillion won, the company said in a filing in Seoul on Tuesday. The company, which had planned for the IPO to be completed this month, pushed those plans until July. The hotelier announced the change in an amended listing prospectus filed a day after it postponed the June 6 start of an overseas investor roadshow.

Hotel Lotte said it now expects its shares to be priced 85,000 won to 110,000 won each, rather than 97,000 won to 120,000 won. That represents a cut in price of about 12 percent at the low end of the range and 8 percent at the high end.

The firm will set price on July 11, the prospectus showed.

The actions were taken after prosecutors in Seoul began an investigation into bribery allegations against executives of the family-run company.

For Lotte Group, a business empire with more than 100 trillion won ($86 billion) in assets, the investigation adds to the turmoil that’s plagued the Japanese-Korean conglomerate since last year, when a power struggle atop the founding Shin family erupted. At the high end of its proposed price range, Hotel Lotte’s IPO would be larger than any such deal completed globally this year and the biggest ever in Korea.

Last year, Lotte Group, South Korea's fifth-largest conglomerate, said that it would list Hotel Lotte as part of efforts to simplify its ownership structure amid what reports call "a family feud over leadership succession." The feud prompted criticism of Lotte's shareholding structure, triggering a reorganization including the IPO.

Korean prosecutors are investigating allegations that Shin Young Ja—sister of Lotte Group’s chairman—and other Lotte executives accepted payments from Jung Woon-ho, head of closely held cosmetics and toiletries maker Nature Republic, in return for preferential treatment in Lotte’s duty-free stores, the company’s biggest business segment.

In its filing, Lotte acknowledged the investigation and said an unfavorable outcome could negatively impact the company’s operations.

Lotte is the world’s third-largest operator of duty-free shops. The company is also the largest hotel group operator in Korea and manages the Lotte World amusement parks that compete with Samsung Group’s Everland.

A group spokesperson said that Hotel Lotte would use its IPO proceeds to expand its global business, including hotels, with acquisitions a possibility. Last year, Hotel Lotte paid $805 million for the New York Palace hotel. Lotte’s deal was “the largest single American asset purchase by a [South] Korean company,” according to Hodges Ward Elliott, which handled the deal for Lotte. The company, which owns 18 hotels in five countries, including Russia and Vietnam, then changed the name of the hotel to the Lotte New York Palace.

The sale is being arranged by Mirae Asset Daewoo Company, Citigroup and Bank of America Merrill Lynch.

Source: Bloomberg, Reuters