Hotel Lotte has reduced the size of its planned IPO by around $350m to $4.5bn, delayed the release until July and temporarily placed its planned international investor road show on hold, following the launch of an investigation into trading practices.

This follows raids on its offices by Seoul Central District Prosecutor officials last week (Thursday 2 June) as part of its declared investigation into Lotte’s business relationship with one of its cosmetics customers, Nature Republic.

Lotte has made little or no public comment on ‘unsubstantiated’ allegations of bribery that have been widely referred to in both the local South Korean and international press over the last week.

However, it has acknowledged the investigation in a brief written statement to the Reuters News Agency that it will cooperate in full with investigators, while also adding that it selects the products that it carries within its stores fairly.

It has also apparently acknowledged (within its revised prospectus) that the investigation could have an adverse impact on its business, while taking the decision to delay the current IPO launch until early July.

 

The South Korean stock market regulator gave the green light for the IPO back in January of this year, effectively providing Hotel Lotte with a six-month window in which to launch, or alternatively to reformulate its offering and relaunch the process later this year.

The sheer size of the IPO has naturally captured the attention of the international investor community, since it is the largest to be launched by any company since 2015. It is also big news within the international DF&TR business – since more than 80% of Hotel Lotte’s sales revenues come from this sector.

In turn, most of this is also derived from the world’s biggest DF&TR market – the $7.9bn South Korean market (Source: TRBusiness 2014 Korean Market Overview, May 2015).

Last year, TRBusiness ranked Lotte Duty Free as the world’s third largest duty free retailer in 2014, generating sales of $4.02bn, representing an increase of +21.8% (Source: ‘The World’s Top 10 International Operators 2015 ©” – 90-page report).

 

 

Some industry sources have also suggested that if this IPO is successful, then there is nothing to stop Lotte from launching its own shopping spree in the international DF&TR market to boost its market share. Currently, it sits behind industry leader Dufry with sales of $4.2bn in 2014 and DFS Group in second place with $4.1bn. [The 2015 ranking will be available later this year-Ed].

Of course, it could also prove interesting if there is a run launched on Hotel Lotte’s shares by any existing duty free operations, or (more likely) from an outside investor wishing to enter the business. However, the South Korean duty free market leader will ultimately need to weather this latest investigation in the short term if it is to achieve its primary ambition – as currently stated on its website.

This boldly reads: “In the years to come, Lotte Duty Free will take a giant leap forward to lead the world’s duty free business and become a global No. 1 operator of duty free stores.”

Currently, Lotte Duty operates multiple duty free stores in South Korea, while also managing duty free businesses in Indonesia, Guam and Japan.