Will Lotte Chairman Shin Dong-bin be questioned?

“In prior cases such as SK and Hyosung, prosecution summoned a number of company officials and tracked the flow of funds to secure solid evidence before questioning group owners. I think it is too early to discuss whether or when to call Lotte chairman Shin,” a senior prosecutor told The Korea Times by telephone, Sunday.

Key Lotte Group affiliates were being probed over their role to create a slush fund to bribe influential local politicians in return for winning advantages to push ahead the group’s fancy business projects and for massive accounting fraud.

Prosecutors raided offices of Lotte Group, which were immediately reported to the chairman. Prosecutors issued an international travel ban on Shin’s confidants in what officials say is a preemptive measure before questioning the chairman.

The official said Lotte’s senior executives “intentionally and systematically” destroyed evidence ahead of the raids, raising possibilities that the chairman was earlier informed of these actions.

“Lotte Group attempted to destroy and hide related documents and evidence when it underwent a tax audit last year,” he said. “We confirmed that the group did the same this time but were able to secure most of the hidden documents.”

Shin’s house was also raided while he was in the U.S. for business. The chairman is expected to be questioned by prosecutors upon his return to Korea, but some say it’s still uncertain whether the chairman will return next week, as scheduled.

“The chairman will be notified of developments of the probe by prosecutors and his return date will be fixed according to the situation. The country’s top law firm Kim & Chang supports Shin,” said an official who is involved with the issue, by telephone.

Prosecutors believe Chairman Shin has connections with his older sister Shin Young-ja, who allegedly coordinated bribery with failed business tycoon and lobbyist Nature Republic CEO Jung Woon-ho. Young-ja was said to take bribes from Jung in return for granting approval for Nature Republic to open its brand shops at Lotte Free Duty stores.

No way out

Due to growing uncertainties about the chairman’s destiny, Lotte’s key business plans have been stalled.
In a statement, Lotte Chemical, the group’s key petrochemical affiliate, said it dropped its ambitious bid to purchase U.S. company Axiall. Lotte Chemical said the decision was mostly due to possibilities that the group may fall into managerial vacuum.
More importantly, analysts say Lotte Group’s plan to put the Lotte Hotel for the listing in Korea, which has been slated for next month, may be delayed as the investigation is expected to be widen, hurting investor sentiment.

The listing of Hotel Lotte is one of the reform pledges that Lotte Chairman Shin has made as part of his efforts to improve its corporate image overall.

“It’s almost impossible to finalize the IPO by July. I don’t even think Lotte Hotel will be able to be listed this year. The initial IPO price for the hotel will be discounted further given the current market situation,” said a local analyst asking not to be identified.

Meanwhile, the succession feud, which had seemed to come to an end, is seen to enter a second round with the latest prosecutors’ investigation as Shin’s older brother Shin Dong-joo preparing a fresh attack against the Lotte chairman over his alleged misconduct.

Analysts say the latest probes are believed to hurt the credibility of Chairman Shin as group leader, and Dong-joo may bring up the issue at the shareholders’ meeting of Tokyo-based Lotte Holdings next week, which controls the group both in Korea and Japan.