South Korean prosecutors raid Lotte Group offices

According to the public prosecutor’s office, the group raised a slush fund of billions of won during the course of the construction of the second Lotte World in the previous government while being given illegal preferential treatment with regard to a change in the use of land in Busan City for the Busan Lotte Town Tower and its business in the domestic beer market.

Lotte Group affiliates in South Korea paid more than 180 billion won (US$154 million) in dividends to their Japan-based sister companies over five years through 2015, a local corporate survey company said Monday.

Only last Friday the SCP extended its investigation into the Lotte Group by raiding a further 17 offices in Seoul.

Three people with direct knowledge of the matter said the raids were part of an investigation into a possible slush fund, dealing a new blow to the hotel unit’s planned IPO, which could be the world’s biggest this year. “The markets’ view on it is negative now, so the possibility for postponing it is also growing”, he said.

Flagship retail unit Lotte Shopping tumbled 5.38 percent to 211,000 won (US$179.9) on the main bourse, and the chemicals subsidiary sank 3.91 percent to 258,000 won.

Additional delays could be costly.

SEOUL-A widening investigation into South Korea’sLotte Group has plunged the country’s fifth-largest conglomerate deeper into crisis, derailing a blockbuster initial public offering at the heart of a closely-watched corporate restructuring.

The cancelled float, which the company blamed on “international and external issues”, is bad news for the banks on the roster including Citigroup and Bank of America Merrill Lynch.

But last year’s highly public power struggle within the founding Shin family fuelled resentment at the grip the chaebol hold over the Korean economy.

Shin Dong-bin, the younger son of the group’s founder, prevailed over his older brother to head the group.

Shin then sidelined his father into an honorary position and stripped his brother of his job. The older brother has since attempted multiple challenges to Shin Dong Bin’s authority but to little avail.

Lotte Group Chairman Shin Dong-bin now controls the retail giant after winning shareholder support at Lotte Holdings’ previous shareholders’ meeting in March. Lotte was accused of omitting names of two executives convicted of bribery when applying for a license.

In addition, the Korean government punished Lotte Shopping last month by banning its home-shopping channel from broadcasting during prime time hours for six months.