Lotte Group, South Korea’s sixth-largest conglomerate, refuted recent rumors of a liquidity crisis on Nov. 22. The group said in a press release that it is maintaining “stable liquidity,” with real estate assets and readily accessible deposits amounting to 71.4 trillion won ($51 billion). The announcement came after market rumors raised concerns over the group’s liquidity challenges, particularly involving its chemical subsidiary, Lotte Chemical.
“As of October, total group assets reached 139 trillion won, the value of shares held stood at 37.5 trillion won, and real estate assets were valued at 56 trillion won,” the Lotte Group said. “We are maintaining stable liquidity and are focused on asset efficiency and profitability-centered management across the group to enhance our financial structure,” the group added.
Lotte’s decision to disclose its financial position was prompted by Lotte Chemical’s failure to meet financial covenants on some of its corporate bonds on Nov. 20. The bond terms required Lotte Chemical to maintain an EBITDA-to-interest expense ratio of at least 5, but this figure fell to 4.3 in September due to operational losses. The breach raised the possibility that lenders could demand early redemption of the bonds.
However, financial institutions have indicated that such measures are unnecessary, citing the group’s strong financial position. “Lotte Group’s assets are more than sufficient to cover its bond payments, so there is no reason to demand redemption right away,” said a commercial bank official.
The disclosure came after market speculation fueled by a viral YouTube video and informal rumor reports, known as “jirashi,” alleged a liquidity crisis at the group. The rumors caused the stock prices of Lotte’s major listed companies to drop simultaneously.
“The liquidity crisis rumors are completely false,” Lotte stated, adding that it plans to take legal action against those responsible for spreading misinformation. The sharp decline in stock prices stabilized the next day after the group’s reassurances and supportive reports from securities firms.
Lotte Group asserted there are no fundamental issues concerning Lotte Chemical’s corporate bonds. The group called the situation a temporary problem caused by a downturn in the petrochemical industry, which has affected Lotte Chemical’s profitability. “Lotte Chemical is currently negotiating with creditors and plans to hold a bondholders’ meeting next week to adjust the terms of its debt, with another meeting scheduled for next month to finalize the adjustments,” the group said.
While rumors of the group’s liquidity crisis are overblown, analysts agree that Lotte must address its prolonged underperformance to improve public perception.
Lotte Chemical and Lotte Shopping, two of the group’s key affiliates, have reported weak earnings this year. Lotte Chemical, a long-time profit engine that posted annual operating profits exceeding 1 trillion won from 2015 to 2019, recorded 660 billion won ($495 million) in losses this year through September amid a petrochemical sector slowdown. Lotte Shopping, which operates department stores, supermarkets, and hypermarkets, has been hit hard by competition from e-commerce, with sales declining by 3.8% year-on-year through the third quarter and net profit plummeting by 90.7%.
