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| Hanssem's headquarters in Seoul / Courtesy of Hanssem |
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| Lotte Group Chairman Shin Dong-bin / Courtesy of Lotte Group |
The falling stock price of Hanssem is causing another financial headache for Lotte Group, which has already injected a huge amount of money into its cash-strapped construction unit, according to industry officials, Thursday.
Lotte Shopping, which jointly acquired a controlling stake in Hanssem with IMM Private Equity (PE) last year, is said to have decided at Thursday's board meeting to make an additional 35.9 billion won ($27 million) investment in the furniture maker. Lotte Himart, another major shareholder of Hanssem, also reportedly decided last month to invest an additional 6.9 billion won in the company.
Their decisions resulted from IMM PE's efforts to maintain Hanssem's valuation.
When the private equity firm (PEF) tried to take over the furniture maker, it borrowed 821 billion won from Shinhan Bank and other lenders, setting the loan-to-value (LTV) ratio at up to 85 percent.
The buyer, however, became unable to maintain the upper limit for the LTV, after Hanssem's stock price fell below 50,000 won recently, due to its sluggish sales caused by the real estate market slowdown. During the third quarter of this year, Hanssem suffered a 13.6 billion won operating loss.
IMM PE is estimated to have offered 220,000 won per share when acquiring Hanssem. The PEF therefore reportedly decided on Thursday to invest an additional 57.2 billion won, while the Lotte affiliates make a combined 42.8 billion won investment.
"Our board meeting is supposed to take place today," a Lotte Shopping official said Thursday. "We will make an official announcement later, if our board of directors decide to make an additional investment."
NICE Investors Service analyst Lee Dong-sun regarded Lotte Shopping's latest investment as "bad news" for the company, although he saw that the size of the investment was not large enough to affect the retailer's credit rating.
"If Lotte Shopping continues with this unexpected investment in Hanssem, it may face financial difficulties," he said.
Lotte Group's major affiliates have already been busy offering financial support to Lotte E&C.
Within the past month, the builder raised at least 1.1 trillion won from its affiliates, including Lotte Chemical, Lotte Fine Chemical, Lotte Home Shopping and Hotel Lotte, by borrowing money from them or selling its newly issued shares. Lotte Group Chairman Shin Dong-bin also bought some of Lotte E&C's newly issued shares for 1.1 billion won.
Earlier this week, Lotte Property & Development promised to offer up to 110 billion won in financial support if Lotte E&C fails to repay 100 billion won lent by KB Green Energy First L.L.C.
Lotte Property promised last month to offer up to 420 billion won in financial support if Lotte E&C fails to repay 200 billion won lent by Hana Bank and 150 billion won lent by Standard Chartered Bank Korea.
Considering that Lotte Chemical also needs 2.7 trillion won for its planned acquisition of Iljin Materials, concerns have grown over Lotte Group's financial soundness, despite the group's continuous attempts to dismiss such fears by emphasizing its cash reserves.
In addition, Lotte's potential liquidity crisis has affected the business plans of its affiliates.
Unlike Korea's four largest business groups, which finished their annual executive reshuffles this week, the nation's fifth-largest conglomerate has delayed its annual reshuffle of its top executives by a couple of weeks to mid-December.
