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(LEAD) Lotte kicks off emergency management committee after chief's imprisonment

2018/02/14 19:11

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(ATTN: RECASTS throughout with commentary by Moody's Investors Service)

SEOUL, Feb. 14 (Yonhap) -- Lotte Group said Wednesday that it has launched an emergency management committee to handle key decision-making issues amid uncertainties over the retail giant's strategic planning after its chairman Shin Dong-bin was jailed for a bribery scandal.

On Tuesday, a Seoul court sentenced Shin to two and a half years in prison for giving 7 billion won (US$6.4 million) in bribes to a foundation run by ex-President Park Geun-hye's friend as he sought favors in winning a government license to run a duty-free business in Seoul.

The imprisonment of Shin has effectively created a leadership vacuum at the country's fifth-largest conglomerate by sales, as it is striving to put operations in China back on track after being hit hard by a diplomatic row between Seoul and Beijing last year.

Hwang Kag-gyu, chief executive and vice chairman of Lotte Holding Co., will serve as acting chairman to keep the retail conglomerate's businesses in line and minimize fallout, the company said.

Also Wednesday, Moody's Investors Service said the ruling by the Seoul Central District Court is credit negative for Lotte Shopping Co., but will not immediately affect the company's Baa3 issuer rating or stable outlook on the rating.

"The imprisonment of chairman Shin will increase uncertainties over Lotte Shopping's long-term strategic planning and decision making at the highest management level, including the sale of its hypermarket operations in China," said Wan Hee Yoo, a Moody's Vice President and senior credit officer.

Still, he said the development is unlikely to weaken the company's retail business and franchise in South Korea over the next 12-18 months, noting that its day-to-day operations are managed by an experienced and professional management team.

Moody's said that a failure to divest Lotte Shopping's hypermarket stores in China will pressure the company's credit quality and rating, given the significant losses incurred from this business and its elevated financial leverage.

Lotte Shopping reported operating losses of 269 billion won from its hypermarket operations in China during 2017, according to Moody's.

In October, Lotte Shopping said through a public filing that it had appointed a sell-side advisor and was considering the divesture of its money-losing hypermarket stores in China, according to the global rating agency.

Lotte Group became a key target of Beijing's ire after its unit provided a golf course in the southeastern rural South Korean county of Seongju for the deployment of a U.S. missile defense system.

This photo shows Lotte Group Chairman Shin Dong-bin (L) and Hwang Kag-gyu, chief executive and vice chairman of Lotte Holding Co. (Yonhap) This photo shows Lotte Group Chairman Shin Dong-bin (L) and Hwang Kag-gyu, chief executive and vice chairman of Lotte Holding Co. (Yonhap)

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