The soon-to-be listed Hotel Lotte is likely to become a 20 trillion won (S$23 billion) holding company for Lotte Group in Korea, going solo from its Japanese sister companies.
The company is also likely to merge with Lotte's flagship retail arms in order to reinforce the domestic governance structure, market watchers suggested Wednesday, a day after Lotte chairman Shin Dong-bin announced the yet-unscheduled initial public offering of Hotel Lotte.
"Once listed, the company is expected to be worth more than 10-20 trillion won, based on its rival Shilla Hotel's valuation and market expectations of average growth of 23 per cent in its operating profit every year thanks to the ever-growing duty-free market," Jun Yong-ki, a researcher at Hyundai Securities, reported.
"Its real estate assets, businesses related to China and many more, on top of the fact that Hotel Lotte will most likely be the holding company of Lotte operations in Korea, raise the value even higher," he added.
The listing of Hotel Lotte is pivotal in achieving the improved governance structure of the 90 trillion won-business empire.
Hotel Lotte owns 12.68 per cent of Lotte Chemical, 3.21 per cent of Lotte Confectionery, 18.77 per cent of Lotteria, 8.83 per cent of Lotte Shopping and many more, and is already dubbed as the de facto holding company of Lotte Korea. Alongside Lotte Shopping, the company is also considered one of the two main axes of the 416 circular holding structures within Lotte Korea.
However, more than 99.28 per cent of Hotel Lotte is thought to be owned by Lotte Holdings in Japan, alongside its Japanese affiliates. This led to suspicions that the Korean hotel and duty-free operator is heavily controlled by Lotte Japan, which generates only one-twentieth of Lotte Korea's sales.
Shin on Tuesday also announced that a holding company for the Korean unit would be established in order to weaken the Japanese shareholders' influence on the country's fifth-largest business conglomerate. Lotte insiders as well as market analysts expect the listing to soothe public antipathy against the conglomerate and bring new growth.
In order to execute Shin Dong-bin's pledge to dilute Japanese shareholders' dominance on the Korean operations, Lotte is expected to sell Japanese's shares while issuing new stocks at the same time.
"Ninety-nine per cent ownership is an absolute portion, and you need to sell and buy the stocks simultaneously to achieve the pledges," Jun noted. "Issuing new stocks will also be imperative in securing the 7 trillion won needed to sever the 416 circular shareholding structures that Shin announced on Tuesday. A similar thing happened during Lotte Shopping's 2006, listing when the company issued 3.4 trillion won-worth of new stocks," he said.
Others suggest that Lotte Shopping, which governs Lotte's main retail businesses here, will merge with Hotel Lotte to add strength to the new holding company.
"After Hotel Lotte is listed, it may merge with Lotte Shopping, and perhaps Lotte Confectionery too may join to create a powerful control tower while streamlining the governance structure," an investment banker said.
On Shin's pledge to dissolve 80 per cent of the entire circular shareholding structure by the end of the year, he said, "Streamlining Lotte's governance structure will take some good years."