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Photo = Yonhap news |
[Alpha Biz= Paul Lee] Lotte Rental is facing mounting criticism from existing shareholders over its decision to proceed with a third-party allotment capital increase, which is being seen as significantly dilutive and unfair. Despite the outcry, South Korea’s Financial Supervisory Service (FSS) has been unable to intervene meaningfully due to regulatory limitations on such private placements, which do not require securities registration filings.
On February 28, Lotte Rental announced a third-party allotment of 7.26 million new shares, equivalent to 19.9999% of the total outstanding shares, to a special purpose company (SPC) backed by private equity firm Affinity Equity Partners. The issue price was set at KRW 29,180 per share, raising approximately KRW 221.9 billion.
The decision coincided with a sale by major shareholders—Hotel Lotte and Busan Lotte Hotel—who offloaded a 56.2% stake (20.39 million shares) to Affinity at KRW 77,115 per share, a 162% premium over the new share issuance price.
The stark contrast in pricing has drawn sharp backlash from minority shareholders, who claim the move dilutes their holdings while enriching the incoming controlling shareholders at their expense. Critics argue that the transaction not only excludes minority shareholders from fair treatment but also erodes their shareholder value.
The controversy has reignited calls for stronger minority shareholder protections, including the introduction of a mandatory tender offer system—part of President Lee Jae-myung’s policy pledges—requiring new controlling shareholders in M&As to purchase a minimum portion of minority-held shares.
The Korea Corporate Governance Forum condemned the move, stating in a commentary: "This is one of the most serious cases of conflict of interest among listed companies in recent memory."
While a court ruling recently voided a similar third-party placement involving Korea Zinc, legal recourse remains difficult for retail investors due to the high burden of proof. Observers warn that unless tighter regulations are introduced, third-party allotments may continue to be exploited at the expense of minority shareholders.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
