Lotte Group, which is improving its financial structure to overcome the liquidity crisis, has released a mid-evaluation of the restructuring of its major listed subsidiaries. As of the end of last year, Lotte Group's total assets stood at 183 trillion won, and since last year's revenue has returned to pre-COVID-19 levels, the explanation states there are no liquidity issues.
According to the retail industry on the 28th, Lotte held an investor relations (IR) meeting the previous day attended by financial officers from five companies, including LOTTE Corporation, Lotte Shopping, LOTTE Chemical, LOTTE Wellfood, and Lotte Chilsung. This comes three months after the company held an IR day for institutional investors and securities analysts in November of last year, when rumors of a group liquidity crisis began to circulate.
◇Reassessing shopping and hotel assets to increase by 12 trillion won... Selling off five asset types, including rental
Lotte faced a liquidity crisis that was triggered when LOTTE Chemical's poor performance resulted in a loss of benefits of corporate bonds (EOD) at the end of last year, leaving it in a position to repay over 2 trillion won in corporate bonds. Following this, Lotte secured the crisis by offering its core asset, Lotte World Tower, as collateral and is expanding liquidity by selling off inefficient businesses and tangible assets from each subsidiary. In just three months, it has disposed of five assets.
After selling the rental car company LOTTE Rental last December, Lotte liquidated its low-profit healthcare business. This month, it sold the baking division of LOTTE Wellfood's Jeungpyeong factory and Korea Seven, which operates the 7-Eleven convenience stores, divested its ATM business to secure over 600 million won in liquidity.
LOTTE Chemical sold its entire stake (75.01%) in its Pakistan subsidiary LCPL for 9.79 billion won to a Pakistan-based private equity investment company. It plans to secure a total of 12.75 billion won, including unpaid dividends.
LOTTE Construction, an unlisted company, is reviewing plans to liquidate 1 trillion won worth of assets, including the expected price of about 500 billion won for its headquarters site in Jamwon-dong, Seocho-gu, to improve its real estate project financing (PF) contingent liabilities. The PF contingent liabilities at the end of last year stood at about 3.7 trillion won, and LOTTE Construction expects to reduce this to around its equity capital of about 2.8 trillion won through asset liquidation.
Lotte Shopping and Hotel Lotte, which maintain high land ownership ratios, have partially improved their financial structures through asset reassessments. As a result, Lotte Shopping's assets increased by 8.7 trillion won and Hotel Lotte's assets grew by 8.3 trillion won, expanding total capital by 12.6 trillion won. Consequently, Lotte Shopping's debt ratio decreased from 190% to 129%, while Hotel Lotte's debt ratio fell from 165% to 115%.
◇Market reaction is cautious... Restoring performance takes precedence over asset sales
Analysts suggest that Lotte Group's decisive response to the liquidity crisis stems from Chairman Shin Dong-bin's strong commitment to reform. At the VCM (president's meeting) held last month, Shin remarked, "Keep in mind that this is the last opportunity for change," and urged, "Even if it is a business with heritage that led past group growth, please redefine the business model from a new perspective and attempt business adjustments."
Recently, companies like Hotel Lotte, LOTTE Wellfood, and LOTTE Chilsung Beverage have reportedly gained market trust by successfully forecasting demand for corporate bonds. For instance, LOTTE Chilsung successfully attracted 9.7 billion won in demand for its planned issuance of 1 billion won in public corporate bonds, comprising 700 million won for three-year bonds and 300 million won for five-year bonds. Hotel Lotte also raised more than nine times its targeted amount.
However, some argue that beyond asset sales, restoring performance in the group’s cash cow sectors, such as distribution and chemicals, is urgent. The emphasis on disposing of inefficient businesses and real estate assets during this briefing suggests limited impact on credit ratings through mere financial restructuring.
Lotte unveiled a blueprint for improving profitability centered on its overseas business during the briefing. Lotte Shopping set revenue goals of 20.3 trillion won and operating profit of 1.3 trillion won by 2030 through expansion in grocery and Southeast Asia. To strategically promote business expansion, it plans to establish an international headquarters (iHQ) in Singapore, which will serve as the focal point for its Southeast Asia ventures.
LOTTE Wellfood aims to enhance domestic profitability through high-value-added businesses like health and wellness while expanding global revenue shares to over 35% focused on market growth in India and fostering global brands. LOTTE Chilsung plans to improve profitability of its Philippine subsidiary (PCPPI) and optimize operations to reduce its debt ratio from the current 177% to 100% by 2028, thereby strengthening financial soundness.
LOTTE Chemical plans to reduce the proportion of its basic chemicals portfolio, which currently accounts for over 60%, to below 30% by 2030. The company will also continue to explore future growth businesses by securing global technological leadership in battery materials and hydrogen energy.
The market is responding cautiously. According to the Korea Exchange, as of 1 p.m. on that day, shares of LOTTE Corporation traded at 21,950 won, down 3.09% from the previous day’s close. Lotte Shopping fell 2.32%, LOTTE Wellfood declined by 2.80%, LOTTE Chilsung dropped 1.60%, and LOTTE Chemical's share price decreased by 4.83%.
Park Dong-heum, a certified public accountant and adjunct professor at the Korea Financial Services Institute, noted, "Asset reassessment may look good on paper, but it does not significantly affect financial restructuring. The sale of real estate assets also has its limitations."
He added, "To fill the coffers, the performance of the business must improve, but in the case of chemicals, there is a problem of oversupply in China, and significant additional capital is needed for expanding overseas. Ultimately, for the business to thrive, the domestic economy must recover."