Lotte Group, grappling with a prolonged downturn in the petrochemical industry, plans to take Lotte Global Logistics Co. public by the end of June as part of the group’s ongoing efforts to ease its liquidity shortfall.
Investment banking sources said the logistics arm of the chemical-to-retail conglomerate is preparing to submit a securities report with the Korea Exchange as early as this month after finalizing its 2024 results.
With its earnings estimated to reach a record high in 2024, it is targeting a valuation of 1 trillion-1.5 trillion won ($700 million-$1 billion).
Lotte Group is determined to complete the unit’s initial public offering within the first half of this year even if means compensating financial investors with a portion of the proceeds, the sources told The Korea Economic Daily last week.
In 2017, Seoul-based H Private Equity invested 286 billion won in Lotte Global Logistics with a put option agreement. It currently owns 21.8% of the company.
Under the terms of the agreement, Lotte is obliged to cover any shortfall between the IPO price and the predetermined strike price, adjusted for compounded interest.
Analysts estimate that the logistics firm must secure a valuation in the high end of the 1 trillion won range to avoid triggering these obligations.
A shortfall could leave Lotte responsible for more than 100 billion won in compensation to H Private Equity.
Lotte Global Logistics promised the investment firm to list by Apri. But the timeline could change, depending on market conditions.
The company posted 72.2 billion won in operating profit in the January-September period last year on sales of 2.68 trillion won.
On top of its solid earnings, a recent rebound in the share price of CJ Logistics Corp., a key industry peer used as a valuation benchmark, bodes well for its IPO. Shares in CJ Logistics have climbed around 10% year to date.
However, achieving a valuation in the trillion-won range may prove challenging. Investor sentiment toward the logistics sector has softened following the pandemic-driven surge.
In addition, half of the shares on offer will come from existing shareholders looking for an exit.
Still, Lotte appears determined to proceed with the listing to free itself from the put-option liabilities.
“In case it needs to meet financial investors’ demands for compensation, Lotte is already preparing the necessary funds,” an investment banking source said.
Lotte Group, one of South Korea’s top 10 conglomerates, is unloading some core assets, including real estate owned by its hospitality and retail units such as Lotte Hotel Co. and Lotte Shopping Co.
Next week, it is set to close a $1.1-billion sale of Lotte Rental Co., the country’s No. 1 car rental service firm to Affinity Equity Partners.
By Seok-Cheol Choi
dolsoi@hankyung.com
Yeonhee Kim edited this article.
