Lotte to retake $269 mn stake in logistics arm after flopped IPO

Lotte Group, South Korea’s fifth-largest conglomerate by assets, will buy back a stake in Lotte Global Logistics Co. from the latter’s financial investor for about 380 billion won ($269 million) after its logistics arm failed to go public.

Lotte Corp., the group’s holding company, announced on Monday in a regulatory filing that LLH has exercised its right to sell 7,472,161 shares, or 21.87%, of Lotte Global Logistics under a put option agreement signed between the two parties in 2017.

As agreed, the holding firm will assume 6,044,952 shares for 307.4 billion won, while its hotel operating arm, Lotte Hotel Co., will take the remaining 1.4 million shares for about 72 billion won.

LLH was established in 2017 by the Seoul-based private equity firm H Private Equity, then Medichi Investment Co., to acquire the second-largest stake of 21.87% in Lotte Global Logistics for 286 billion won.

H Private Equity was spun off from Medichi Investment as a private equity investment arm in 2023.

A PUT OPTION AGREEMENT

The investment was made on the condition that Lotte Global Logistics must go public by 2021 under a put option agreement, which obligated Lotte Group to repurchase LLH’s holdings in the logistics company in case of its failed initial public offering by the deadline or to compensate the investor any shortfall between the IPO price and the predetermined strike price.

The chemical-to-retail conglomerate planned to list Lotte Global Logistics in the first half of this year after multiple delays.

But it called off the latest IPO bid after it failed to entice institutional demand during book-building sessions in April.

Lotte Group was expected to re-negotiate the timeline of Lotte Global Logistics’ IPO with H PE, but the private equity firm decided to exercise the put option right without further delay.

Currently, Lotte Corp. and Lotte Hotel hold the largest stake of 46.04% and 10.87%, respectively.

The estimated exercise price of 378.9 billion won is reflected with the internal rate of return (IRR).

ONGOING LIQUIDITY CONCERNS

Lotte Group was determined to complete the listing of the logistics arm before the end of June, with a valuation of 1-1.5 trillion won after its solid business performance with an improvement in profitability in the past few years.

Lotte Global Logistics’ operating profit growth rate was about 20% higher than that of its peer group average between 2021 and 2024, the company said during a press conference for its IPO plan in April.

However, investors remained cautious about the overall logistics market amid growing concerns over the e-commerce business in the wake of the Trump administration-led tariff war.

In addition, half of the 14,944,322 shares on offer were planned to come from existing shareholders looking for an exit.

The latest setback comes amid lingering concerns about Lotte Group’s overall liquidity, prompting the conglomerate to undertake aggressive restructuring across its affiliates since late last year.

However, the group is said to have enough ammunition to retake the stake from H PE, according to sources.

Write to Seok-Cheol Choi at dolsoi@hankyung.com
Sookyung Seo edited this article.