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Abu Dhabi, UAESaturday 22 September 2018

Chairman of South Korea's Lotte Group jailed

Shin Dong-bin becomes the second head of a top conglomerate to be imprisoned for seeking to curry favour with impeached president

Shin Dong-bin, chairman of Lotte Group, right, walks towards a prison bus at the Seoul Central District Court after he was convicted of bribery. SeongJoon Cho/Bloomberg
Shin Dong-bin, chairman of Lotte Group, right, walks towards a prison bus at the Seoul Central District Court after he was convicted of bribery. SeongJoon Cho/Bloomberg

A Seoul court jailed Lotte Group chairman Shin Dong-bin, convicting the tycoon of bribery for his role in a scandal that toppled South Korea’s former president.

The verdict leaves the nation’s largest retail group leaderless just as geopolitical tension complicates its planned sale of stores in China and as it seeks an initial public offering for its hotel business.

Shin was sentenced to 30 months in prison after the Seoul Central District Court found him guilty of charges stemming from Lotte’s decision to give 7 billion won (Dh 23.8 million) to a confidante of President Park Geun-hye, allegedly in exchange for government favours in providing a licence to operate duty-free stores. Prosecutors had sought a four-year jail term.

He becomes the second head of a top conglomerate to be imprisoned for seeking to curry favour with impeached Ms Park by bribing one of her confidantes. The de-facto head of technology giant Samsung Electronics was jailed last year in a related trial but he was unexpectedly released last week on appeal, in a ruling that was perceived as a setback to government pledges to curtail the power of the nation’s corporate elite.

For Lotte, a conglomerate with businesses including chemicals and hotels, the decision comes after a sweeping reorganisation last year that created a holding company for many of the companies assets and consolidated Shin’s control. The conglomerate had also re-started plans for an initial public offering of its hotel unit.

“We respect the court’s decision, but the result is very regretful,” Lotte said. “We are concerned that this could have a big negative impact ahead of the planned Hotel Lotte IPO and completion of the holding company and on investment as well as employment.”

Shin was one of three defendants whose verdicts were read out on Tuesday for their roles in a scandal that gripped Korea most of last year. Choi

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Soon-sil, the former president’s confidante at the centre of the case, received a 20-year sentence for charges that include abuse of power and bribery. One of Ms Park’s former senior aides received a six-year jail sentence.

Shin’s jailing puts a spotlight on his top lieutenant, Lotte Group co-chief executive Hwang Kag-gyu, who may be left to run a conglomerate with scores of units generating more than 100 trillion won in annual revenue. Mr Hwang is also president of Lotte Corp, the holding company set up last year in a sweeping reorganisation aiming to consolidate Shin’s control.

Shin, who turns 63 on Wednesday, was also fined 7bn won. He can appeal the ruling with the Seoul High Court.

The chairman, who’s been running the retail-to-chemicals giant in that post since 2011, had been seeking to invest billions of dollars to expand overseas. Then, a series of crises struck.

In 2015, a family fracas spilled into public view as Shin’s older brother led a boardroom coup that failed. After that, Lotte grappled with corruption investigations and intensifying regulatory scrutiny, which took a toll, with Lotte cancelling a potential $4.5bn initial public offering of a unit and withdrawing a bid for chemical-maker Axiall in 2016. Last year, Lotte was caught in a diplomatic row with China after the company offered its land to the Korean government, which sought to install a controversial US missile defence system opposed by China.

China used to be one of Shin’s biggest priorities as Lotte expanded in the world’s second-largest economy aggressively with investment plans that included developing a 3tn won theme-park project in Shenyang and increasing the number of stores in the country. As China-Korea relations soured, most of Lotte’s 112 marts and supermarkets in China were shut down by Chinese authorities for alleged fire-safety violations, and the Shenyang project was halted.

The group’s efforts to sell the stores in China have stalled as alleged fire-safety infractions have created uncertainty about whether a new owner could operate the stores, a company executive said.

Lotte fixed the fire-safety issues last year, but authorities haven’t moved forward with the company’s request for a reinspection, said the Lotte executive, who declined to be named because of internal policy. China’s fire services department didn’t immediately respond to a request for updates on the Lotte stores.

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