Pressed by Seoul into a land swap deal needed for a controversial new missile defence system earlier this year, South Korean conglomerate Lotte Group had good reason to be sceptical. Just eight months after reluctantly agreeing to exchange a golf course in the country’s south for a piece of land near Seoul, Lotte’s decade-long strategic push into China is now in tatters, raising major doubts about its growth prospects.
The retail-to-chemicals giant is the highest profile corporate casualty of a diplomatic spat between Beijing and Seoul over the US THAAD missile defence system.
Now shunned in China because of the golf-course deal, Lotte is expected to sell its Chinese hypermarket stores for a fraction of what it invested.
Its plans for mega shopping complexes are indefinitely suspended and its businesses in South Korea that counted on big-spending Chinese customers, from ice cream to tourism, are struggling, officials and investors say.
One Lotte executive said South Korea’s fifth largest conglomerate is now looking for acquisition opportunities such as food companies in emerging markets including India and Myanmar.
But investors and corporate experts say no other market can easily replace China or the promise it once held.
“This is one in the eye for Lotte,” said Park Ju-Gun, President of corporate watchdog CEO Score in Seoul. “The group needs to revamp its strategy. It could squeak through by doing more in Southeast Asia, but China is a tough market to replace for a retailer.”
Another Lotte official said the group was trying to boost its chemicals business which currently accounts for a quarter of group sales.
But investing heavily on chemicals will make Lotte’s earnings much less predictable given the volatility of global commodity prices, said Heo Pil-Seok, Chief Executive officer of Midas International Asset Management Ltd, whose firm manages 9.4 trillion won ($8.32 billion). Embroiled in a high-profile family succession feud and a corruption probe, Lotte agreed to a government proposal in February to provide land for the installation of the Terminal High Altitude Area Defence (THAAD) system.
“We agonised over whether to accept the government’s proposal,” another Lotte official said on condition of anonymity because of the sensitivity of the matter.
“But we were not able to say ‘No’ because it was related to national security. If we say no to the government, we can’t do business in Korea.”
A Defence Ministry spokesman said the land deal was done within a legal framework and in consultation with Lotte.
THAAD was installed to counter the missile threat from North Korea but angered Beijing, which says it upsets the regional security balance. — Reuters
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