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Lotte suffers almost $1 billion loss in China: chairman’s brother

October 28, 2015

Shin Dong-joo of Lotte (Yonhap)

SEOUL (Yonhap) — Lotte Shopping, a key retail unit of Lotte Group, has racked up a huge loss from its Chinese operations over the past four years, the elder brother of the group chairman claimed Wednesday, demanding a right to review the firm’s financial report.

Shin Dong-joo, the elder son of Lotte founder Shin Kyuk-ho, filed several legal suits against Lotte Group Chairman Shin Dong-bin, his younger brother, to nullify his dismissal from executive posts from Lotte Holdings Japan and to gain the right see and copy ledgers of Lotte Shopping.

The legal action is the latest iteration of a power struggle between the Lotte founder’s two sons, who each want to take the helm of the business empire based in Korea and Japan to succeed the 93-year-old father.

During the first court hearing held in absence of the two brothers, the ousted vice chairman’s attorney questioned the incumbent chairman’s managerial capability citing poor performance in China, which has been spearheaded by Dong-bin.

According to the plaintiff, sales by Lotte Shopping’s Chinese units have remained sluggish over the past four years, with its net loss rising from 75.3 billion won (US$66.5 million) in 2011 to 554.9 billion won in 2014. In total, Lotte is estimated to have suffered over 1 trillion won of loss from its Chinese business over the past four years, Shin’s attorney said.

“(Lotte Shopping) is recklessly investing in China, like throwing water on thirsty soil,” the plaintiff’s attorney said during the first hearing held at the Seoul Central District Court. “As a major shareholder of Lotte Shopping, Shin Dong-joo filed the injunction to figure out the exact losses from overseas business.”

Lotte attributed the loss from Chinese business to the toughening competition and its slowing economy, noting other global retailers also posted sluggish performance under the unfavorable business environment.

While Lotte Shopping earlier said its earnings before interest, tax, depreciation and amortization (EBITDA) stand at about 160 billion won, the plaintiff argued EBITDA is not a general business indicator.

Shin Dong-bin’s lawyer argued that the real intention of the legal action is aimed at “denting the chairman’s business performance,” accusing Shin Dong-joo of hampering Lotte’s efforts to restore its image.