Lotte chief faces corruption ruling, possible jail time

[SEOUL] A South Korean court will rule on corruption charges against the chairman of Lotte Group on Friday, with the threat of a lengthy jail term that could stymie the firm's ambitions and cap an already turbulent year for its business in China and at home.

Prosecutors have sought a ten-year jail term for Shin Dong Bin on charges of embezzlement and breach of trust following a high-profile prosecution probe since 2016 into the fifth-biggest conglomerate of South Korea.

Shin denies the charges. His lawyers say he was not involved in decision-making for two of the three breach of trust charges, while a third was a legitimate business decision. He was unaware of the issue behind the embezzlement allegations, they say.

The court ruling could see Shin immediately jailed, handed a suspended sentence or found innocent. The latter two would enable him to continue running Lotte and its 110.8 trillion won (S$138 billion) worth of assets for the foreseeable future.

He is expected to be detained immediately if the court hands him a jail term of over three years.

"In the case of a guilty verdict, it could halt Shin's drive to grow Lotte from a domestic-oriented company into a global group and weaken his position in Lotte's Japan-based holding company," said Park Ju Gun, head of research firm CEO Score.

There are already major doubts about Lotte's growth outlook, with its decade-long push into China lying in tatters after it became the highest-profile corporate victim of a spat between Beijing and Seoul over South Korea's installation of a US missile defence system.

Shunned in China, its key market, after it was pressed by Seoul to provide land for the Thaad missile defence system, Lotte's third-quarter China hypermarket sales were nearly wiped out to about US$277,793 from around US$264 million a year ago.

Nearly all Lotte Mart stores in China have been shut for much of the year over alleged fire safety issues, and the group has now put the business on the block.

But the sale is expected to be delayed past the end-2017 deadline Lotte had sought, Lotte Corp official Choi Min Ho said, without giving a reason.

BATTENING DOWN THE HATCHES

Lotte's businesses in South Korea, including its major duty-free operations, that had counted on big-spending Chinese tourists, remain under pressure amid curbs on Chinese tour groups travelling to the country.

South Korea's credit rating agencies have downgraded or cut their outlook for corporate bonds of the group's flagship retailer Lotte Shopping and Hotel Lotte, citing hurdles in improving their financial stability.

Lotte, which shelved plans for an estimated US$4.5 billion IPO of Hotel Lotte amid the investigation, is now battening down the hatches as a difficult year draws to an end.

Lotte Shopping has frozen wages for its department store business this year for the first time since 2009, three Lotte officials said this week, declining to be identified as the matter was sensitive.

While Lotte confirmed wages had been frozen, the retail-to-chemical conglomerate declined further comment.

However, one of the officials from the department store business said: "Wages have been frozen due to various factors, but the THAAD issue was one of them."

REUTERS