Lotte affiliate to raise 360 bln won to cope with THAAD fallout
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A unit of Lotte Group, a South Korean retail giant currently receiving the brunt of China’s apparent economic retaliation in protest over Seoul’s deployment of a U.S. missile defense scheme, said Friday that it plans to raise a total of 360 billion won (US$320 million) via stock sales and loans.
In a regulatory filing, Lotte Mart, the operator of the group’s hypermarket chain, said its board of directors has decided on the proposal to sell stocks and borrow money.
The proceeds from the stock offering and loans will be used to cover the costs of buying products and giving wages to its employees in China, according to company officials.
The China-based retail outlet unit has been teetering on the brink of collapse as protracted business suspension by Chinese authorities is leaving the firm with snowballing losses.
China has ratcheted up pressure against Lotte, South Korea’s fifth-largest family-controlled firm, since it handed over one of its properties to the Korean military so it can be used as a site for a U.S. Terminal High Altitude Area Defense (THAAD) battery.
Seoul’s deployment of the THAAD on its soil has angered Beijing, who claims that it will be used to monitor its own military.
According to Lotte, 90 Lotte Mart stores operating in China, Lotte’s hypermarket chain, have been placed under suspension or on voluntary suspension as some Chinese consumers continued to stage anti-Korea protests near the stores.
“Seoul’s deployment of the THAAD on its soil has angered Beijing, who claims that it will be used to monitor its own military.”
That represents nearly 90 percent of 99 Lotte Mart outlets in China that have been forced to close down temporarily. Lotte has some 120 retail outlets operating in the neighboring country, including five department stores.
Lotte is predicted to suffer some 116.1 billion in losses in its Lotte Mart revenue if the shutdown continues for a month. Last year, sales from China-based Lotte Marts reached 1.13 trillion won, or 94 billion won on a monthly basis, according to the firm.
The profitability of Lotte’s retail outlet business has been expected to further worsen since it is required to pay full wages to local employees for the first month of the suspension.
The suspension means a serious blow to Lotte, since its China-based business has long been running a deficit even though it has been in the world’s second-largest economy for some 10 years.
In 2016, Lotte recorded a combined 207 billion won deficit in its department store and outlet divisions, of which about 80-90 percent came from its Chinese units.
Industry watchers voiced concerns that Lotte may have to consider a pullout given that losses from the shutdowns are growing too fast for the firm to withstand.
But, in an interview with foreign news media, Shin Dong-bin, chairman of Lotte Group, flatly denied such speculation saying that the company has no intention of pulling out of China.
Questions & Answers
Q.What is the purpose of the 360 billion won being raised by Lotte Mart?
What is the purpose of the 360 billion won being raised by Lotte Mart?
The funds from stock sales and loans are intended to cover the costs of buying products and paying wages to Lotte Mart's employees located in China. This is crucial as their China-based unit faces significant losses.
Q.Why are Lotte Mart stores in China facing business suspensions?
Why are Lotte Mart stores in China facing business suspensions?
Chinese authorities have suspended operations at Lotte Mart stores as a form of apparent economic retaliation. This follows Lotte handing over property to the Korean military for a US missile defense system deployment.
Q.How many Lotte Mart stores in China have been affected by closures?
How many Lotte Mart stores in China have been affected by closures?
Around 90 Lotte Mart stores in China, out of a total of 99, have been placed under suspension or voluntary suspension. This represents nearly 90 percent of their hypermarket outlets in the country.
Q.What is Lotte's long-term stance on its operations in China despite the current difficulties?
What is Lotte's long-term stance on its operations in China despite the current difficulties?
Lotte Group Chairman Shin Dong-bin has denied speculation about a potential pullout from China. He stated the company has no intention of withdrawing from the country, despite mounting losses.
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