Lotte Hotel, the cornerstone of the Lotte Group’s governance structure, has initiated asset securitization to address mounting liquidity concerns. The company plans to sell several hotels and its stake in Lotte Rental, where Lotte Hotel is the largest shareholder. As part of this initiative, Lotte Hotel underwent an executive reshuffle at the end of last month, replacing top executives across its three divisions—Hotel, Duty-Free, and World.
But as the company takes steps to solve its debt issues, its long-awaited initial public offering (IPO), Lotte Group Chairman Shin Dong-bin’s long-held ambition, has been pushed back indefinitely, potentially by over a decade.
Lotte Group announced last month that it is considering the sale of its L7 hotels and two to three Lotte City Hotels to address Lotte Hotel’s liquidity challenges, according to sources familiar with the matter on Dec. 5. The anticipated sale is valued at roughly 600 billion won ($425 million).
The company will also shut down unprofitable overseas duty-free outlets and reduce the operating area of duty-free shops at Lotte World Tower in Jamsil to lower fixed costs. Lotte Hotel plans to sell a portion of its real estate holdings, valued at 6.73 trillion won as of the second quarter of this year, to secure liquidity.
Lotte Hotel’s short-term debt due within a year amounted to 2.3061 trillion won, and total debt reached 8.7616 trillion won as of the third quarter. The company’s cash and cash equivalents stood at just 710.8 billion won, resulting in a debt ratio of 49.5% on a consolidated basis, raising concerns about a potential credit rating downgrade. However, Lotte Group clarified late last month that cash reserves improved to 1.1 trillion won by November.
The company’s operations span three main divisions: hotels (including resorts and golf courses), duty-free shops, and the World division (including Lotte World Adventure, Gimhae Lotte Water Park, and Lotte World Aquarium). The company posted 7.3965 trillion won in revenue and 318.3 billion won in operating profit in 2019, but earnings performance dropped by half during the pandemic in 2020.
Despite a partial recovery in 2022, with revenue rising 24% to 4.75 trillion won and a return to operating profit of 132.6 billion won, the company’s duty-free business, its primary revenue driver, has remained sluggish. By the third quarter of this year, Lotte Hotel reported a cumulative operating loss of 28.5 billion won.
Lotte Hotel’s ongoing investments and financial support for affiliates have exacerbated its financial troubles. The company spent 260 billion won to acquire additional shares in Lotte Rental and made significant investments in acquiring the Kimpton Hotel Chicago and duty-free shop operations at Changi Airport in Singapore.
