'Unexpected Lotte Crisis Rumors' Presumed to Start on YouTube... Lotte "Considering Legal Action"

Lotte's Public Disintegration Theory Started on YouTube
Shares of Lotte Holdings and Others Plunge One After Another
Poor Business Conditions of Major Affiliates... Frequent CP Issuance

On the 18th, Lotte Group was suddenly engulfed in a crisis rumor. The crisis, believed to have started from a YouTube video claiming that the group was on the verge of disintegration due to a liquidity crisis, spread through 'Jirasi (securities market information sheets)'. Although Lotte immediately denied the rumors, the corporate value of not only Lotte Holdings but also major affiliates declined.

Lotte Holdings, the holding company of Lotte Group, clarified through a disclosure on the same day regarding the recent liquidity crisis rumors, stating, "The rumors about Lotte Group's liquidity crisis currently circulating are groundless."

Earlier, over the past weekend, rumors that Lotte was facing a liquidity crisis spread mainly in the securities market. The rumors included claims that Lotte Group's net income relative to its borrowings was very low. It was also suggested that the entire group might declare a moratorium on payments due to the liquidity crisis.

This is exactly the same as the claims made in a YouTube video. A YouTuber, in a video uploaded on the 19th, stated, "Lotte Group's borrowings amount to 39 trillion won, ranking 4th among business groups, while its net income is 1.1 trillion won, ranking 17th," adding, "This means that while the debt ranks 4th, the ability to repay it ranks 17th." The YouTuber further warned that Lotte could follow in the footsteps of the Daewoo Group due to reckless borrowing management and aggressive corporate acquisitions.

As this Jirasi spread, Lotte affiliates' stock prices plummeted on the day. Lotte Holdings closed at 20,550 won, down 6.59% (1,450 won) from the previous trading day. Lotte Chemical fell 10.22% (7,500 won) to 65,900 won, and Lotte Shopping dropped 6.6% (4,100 won) to 58,000 won.

It is true that Lotte Group's performance has deteriorated recently due to sluggish business conditions among its affiliates. According to Lotte Holdings' business report, the consolidated net loss of Lotte Holdings for the third quarter this year was 21.564 billion won. The cumulative net loss up to the third quarter this year reached 187.1 billion won. This marks a turnaround to losses compared to net profits of 149.4 billion won and 271.5 billion won for the third quarter and cumulative third quarter of last year, respectively.

To prevent the maturity of 120 billion won worth of short-term commercial paper (CP) due on the 29th of this month, Lotte Holdings issued long-term CP worth 120 billion won (including 10 billion won for 1 year and 6 months and 110 billion won for 2 years and 6 months), securing liquidity in the short-term funding market but raising concerns about corporate credit.

Debt also increased. As of September 30 this year, Lotte Holdings' current liabilities stood at 7.1644 trillion won, about 6.5% higher than the 6.7279 trillion won in current liabilities as of December 31 last year.

Because of this, Lotte Group recently embarked on a high-intensity austerity drive, which appears to have been overinterpreted, leading to the spread of crisis rumors through YouTube videos and Jirasi.

Executives of chemical affiliates such as Lotte Chemical and Lotte Fine Chemical, as well as Lotte Holdings, have voluntarily decided to return part of their salaries starting this month as a measure of responsible management. This move is known to demonstrate the management's determination, including Chairman Shin Dong-bin, to overcome the difficult environment amid the petrochemical industry's downturn and increasing domestic and international uncertainties. Lotte Duty Free also entered emergency management from June.

Lotte Holdings switched to an emergency management system from August. This was to strengthen cooperation by increasing support for the management activities of each affiliate amid an uncertain business environment. In terms of workforce restructuring, Lotte On (June), Lotte Duty Free (August), and Seven Eleven (October) have implemented voluntary retirement, and Lotte Hotel & Resort is accepting voluntary retirement applications until the 22nd of this month.

Lee Jin-hyeop, a researcher at Hanwha Investment & Securities, wrote on his social media channel, "As an outsider to Lotte Group, it is not easy to comment on whether the funding issue is true or not," but added, "However, it is hard to see how the group would declare a moratorium soon when it is making value-up disclosures, announcing investments, and Lotte Giants are signing free agents worth tens of billions of won."

He continued, "The fact that a single post spread through Telegram can have such a ripple effect shows how much trust in not only Lotte Group but also the domestic stock market has declined."

A Lotte Holdings official stated, "We are considering legal actions such as requesting investigations into the originators and distributors of the rumors."