Lotte Construction transferred all of its equity in "Lotte Property Hanoi Singapore" to Lotte Shopping, securing about 37 billion won in liquidity.
According to the Financial Supervisory Service's electronic disclosure system on the 26th, Lotte Construction made an over-the-counter disposal of 25.6 million shares of overseas affiliate Lotte Property Hanoi Singapore to Lotte Shopping on the 21st. The disposal unit price was 1,448 won per share, for a total of 37 billion won. With this transaction, Lotte Construction disposed of all of the entity's equity, and Lotte Shopping increased its equity from 90% to 100%. Lotte Property Hanoi Singapore operates Lotte Mall West Lake in Hanoi, Vietnam.
Lotte Construction sold its equity to secure liquidity and improve financial stability. Lotte Construction has been facing a liquidity crunch since the "Legoland incident (Gangwon Jungdo Development Corporation rehabilitation filing case)" in 2022. Lotte Construction's project financing (PF) guarantees swelled from 3.6 trillion won at the end of 2020 to 6.8 trillion won at the end of 2022 amid the credit squeeze in the financial market following the Legoland incident. PF guarantees can shift loan repayment responsibility to builders if projects are delayed or fail, so they are effectively classified as "contingent liabilities." For that reason, the scale of guarantees is regarded as a key indicator for assessing a builder's financial stability and liquidity risk.
As the situation unfolded this way, Lotte Construction received an emergency cash injection of 1.1 trillion won through paid-in capital increases and borrowing support from affiliates. It also raised a 1.4 trillion won PF fund through Meritz Financial Group, putting out the immediate fire. In 2024, it formed a 2.3 trillion won PF refinancing fund with commercial banks, the Korea Development Bank, and securities firms. In Feb., it began selling real estate assets, including its headquarters building, after consulting, and has been making all-out efforts to secure liquidity. This equity sale is seen as part of that.
Even so, the market remains wary of Lotte Construction. A prime example is its credit rating. In June, the nation's three major credit rating agencies collectively downgraded Lotte Construction's credit rating from "A+ (negative)" to "A (stable)." The agencies cited the burden of PF contingent liabilities and deteriorating profitability. Although PF contingent liabilities fell to 3.6 trillion won last year, nearly half, the burden remains heavy considering Lotte Construction's shareholders' equity is under 3 trillion won.
Profitability is not in good shape either. Lotte Construction's operating profit in the third quarter was 51.1 billion won, down 1.6% from a year earlier. Revenue rose 3%, but net profit fell 92.2% to 2.8 billion won. The liability ratio, which hit 265% at the end of 2022, briefly fell below 200% at the end of last year before rising again to 214.3% at the end of Sept. The market views a liability ratio above 200% as a warning sign for financial soundness.
A construction industry official said, "It is positive that PF contingent liabilities have decreased and the liability ratio has fallen, given that Lotte Construction has made all-out efforts to improve its financial structure through strengthening financial stability and cash flow–centric management," but added, "There were even default rumors at one point in the market today, and with the economic slowdown and industry slump weighing on the entire Lotte Group, securing liquidity and improving profitability will be key."