SEOUL (Reuters) - Shares in Lotte Corp (004990.KS), the new holding firm for South Korea’s No. 5 conglomerate, soared almost 50 percent above their issue price in their debut, as investors welcomed the group’s streamlined ownership structure and bet on more restructuring.
The debut comes at a difficult time for the conglomerate, which has been hit by political tensions between Beijing and Seoul while its chairman is on trial for corruption.
Even so, combined valuations for Lotte group’s main listed firms on Monday were some 8 percent above levels for comparable entities in late September, outperforming a 5.4 percent rise for the benchmark index.
Lotte Corp’s stock finished at 70,400 won per share on Monday, jumping from its issue price of 47,100 won.
Korea’s stock exchange, however, calculates moves on the first day of trade by comparing with an opening price which it works out from an average of orders before trade. On that basis, it was up 10 percent on the day.
News that prosecutors are seeking a 10-year jail term for Lotte Group Chairman Shin Dong-bin came after the market close and was not factored in.
Buying by passive funds that track the main KOSPI index .KS11 was one key factor behind Monday's surge, but the climb was also driven by expectations that Lotte Corp would move to gain control of other big units.
“Chairman Shin Dong-bin still doesn’t have direct control of Hotel Lotte and Lotte Chemical and to resolve this, there needs to be further steps. For example, Hotel Lotte should be listed, then split in two with one part absorbed into the holding company,” Choi Nam-gon, analyst at Yuanta Securities Korea, wrote in a client note.
The holding company, which currently controls 42 of the group’s 91 units, was created to simplify the group’s complex ownership structure and enhance the control of Shin, who survived a power struggle with his elder brother.
Under the restructuring, four key group firms - Lotte Shopping, Lotte Confectionery, Lotte Chilsung Beverage and Lotte Food were each split into two companies, with half of the resulting eight firms - mainly comprising their investment holdings - combined into one holding company.
The remaining four companies resumed trading on Monday after having been suspended since Sept. 28.
Lotte Confectionery (280360.KS), which has previously served as a proxy for the whole Lotte group for many investors, tumbled 15.7 percent as they switched out of the firm and into Lotte Corp.
Lotte Shopping (023530.KS), the group’s flagship retail unit, was down 7.1 percent. As one of the South Korean firms most hurt by the political tensions between Beijing and Seoul, it has had to close most of its stores in China and last week posted a 58 percent drop in third-quarter operating profit.
The Lotte group agreed to hand over land to the South Korean government for a U.S.-made missile defense system in late February - a plan that has angered Beijing, which argues the radar can penetrate far into its territory.
Shin was charged with embezzlement and breach of trust in October. The lower court ruling is due in December.
It is unclear how much of an impact there would be on business for the Lotte group if Shin was found guilty and jailed. South Korean corporate executives are often handed down much shorter sentences than those sought by prosecutors or sometimes have their sentences suspended.
South Korea’s most valuable company Samsung Electronics (005930.KS) has reported record quarterly earnings while the group’s scion and vice chairman, Jay Y. Lee, remains detained. He has given a 5-year jail term for bribery but has appealed the ruling.
Reporting by Joyce Lee and Dahee Kim; Additional reporting by Hyunjoo Jin; Editing by Edwina Gibbs