Lotte feud ignites nationality dispute

“Lotte is a Korean company.”

These words of Seoul-based Lotte Group chairman Shin Dong-bin may be simple enough, but the conglomerate’s nationality is fast becoming an issue of contention.

The controversy over whether Lotte is a Korean or Japanese company flared up again this week amid a bitter succession battle involving the two sons of group founder and general chairman Shin Kyuk-ho.

Lotte, having foundations in both Korea and Japan, has long been plagued by this question. The two sons -- Shin Dong-joo and Shin Dong-bin -- speak very little Korean and 99 percent of Lotte Hotel Co.’s stakes are held by Japanese entities. Lotte Hotel Co. is the holding firm for Lotte’s Korean operations.

Lotte World Tower in Jamsil, Seoul (Yonhap)

In an attempt to undermine his younger brother, Dong-joo recently appeared on a Korean news channel and held an interview in Japanese, which invited anger from Korean viewers. 

In response, Dong-bin apologized and made statements in Korean, in an apparent bid to win over public opinion. 

“It’s a Korean company. About 95 percent of the total sales are generated in Korea,” he said in Korean.

However, far from garnering clear support for either one, the brothers’ antics have pushed the spotlight onto Lotte’s nationality, an issue that has gnawed at the conglomerate for decades. 

Lotte is a household name here, but Korean’s deep-seated historical animosity toward Japan has made the retail giant‘s ”dual nationality“ a weakness.

In Japan, however, many people are said to be unaware that Lotte has ties to Korea, ties close enough to support the claim that the group is in fact Korean.

Several reports from the Japanese media reflect this perspective. 

The Nikkei, Japan’s largest business and economic news daily, released reports of the holding company last month, adding that “Lotte Group’s sales of 6.5 trillion yen ($52 billion) is the largest record for a Japan-based unlisted company and is in the same range as listed firms like Tokyo Electric Power Company.”

“Sales of Lotte’s operations in Korea account for about 80 percent,” the paper said. “Based on Japan’s accounting standards, it has 202 affiliates and of them, nine are listed firms including Korea’s Lotte Shopping and Lotte Chemical.” 

Market watchers said the reports imply the Japanese public regards Lotte as a Japanese company, regardless of the massive profits generated from Korea.

Japan’s media and public are not alone in viewing Lotte as a Japanese entity. 

Following reports shedding light on Japanese dominance in Lotte Hotel, the public opinion here appears to be shifting nearer to that held in Japan. 

Up to 99.28 percent of Lotte Hotel, a holding firm of Lotte Group in Korea, is reportedly owned by Japanese companies, including Lotte Holdings, L Investment Company and Kojyunsya. 

The affiliates of Japan’s Lotte have also received more than 100 billion won ($86 million) in dividends from the Korean units over the past three years, according to reports.

While the question of Lotte’s nationality remains unanswered, the spotlight is also on the conglomerate’s mysterious management structure.

The government Thursday said it would launch a thorough investigation into Lotte’s complicated governance structure to look into any illegal cash flow.

“The owner family should ensure transparency of its management structure, and stop the fight over who gets control over the company,” Finance Minister Choi Kyung-hwan said in a meeting with reporters Thursday.

“If Lotte doesn’t (make its governance structure clear to the market), there will be corresponding measures taken,” he added.

By Suk Gee-hyun (monicasuk@heraldcorp.com)