[2025 Audit] Ko Jungwook, President of Lotte Holdings: "Existing Treasury Shares Should Be Cancelled Over Time"

Expresses Views on Handling Direction at Planning and Finance Committee Audit

Ko Jungwook, President and Head of Financial Innovation at Lotte Holdings, expressed the view that it would be preferable to take time and carefully proceed with the cancellation of treasury shares in relation to the third amendment to the Commercial Act currently being promoted at the National Assembly.

On the 13th, at the National Assembly's Planning and Finance Committee's audit, Ko Jungwook, President and Head of Financial Innovation at Lotte Holdings (left), appeared as a witness and responded to questions from Oh Ki-hyung, a member of the Democratic Party of Korea. Source: National Assembly Internet Deliberation System screen, Sejungilbo (https://www.sejungilbo.com)

On October 13, Ko appeared as a witness at the National Assembly's Planning and Finance Committee audit and gave this response to Oh Ki-hyung, a member of the Democratic Party, who questioned him about the "mandatory cancellation of treasury shares" initiative currently under consideration by the National Assembly.

He stated, "For newly acquired treasury shares, it is appropriate to cancel them as quickly as possible." However, he added, "For existing treasury shares, it would be better to take time and review the reasons and methods for their acquisition before proceeding with cancellation."

Previously, in June, Lotte Holdings sold 5,245,461 treasury shares (common stock) to Lotte Property & Development, reducing its treasury share ratio from 32.5% to 27.5% of total shares issued. Nevertheless, Oh Ki-hyung pointed out that Lotte Holdings still has the highest proportion of treasury shares among non-financial companies.

In response to a question from Choi Eunseok, a member of the People Power Party, regarding the background of Lotte Holdings' treasury share acquisitions, Ko explained, "In 2016, there were many issues with large conglomerates' circular shareholding structures. To resolve this, we merged 10 companies, which resulted in the acquisition of a significant number of treasury shares." Lotte Holdings had previously explained, when selling some treasury shares to Lotte Property & Development, that "the proportion of treasury shares increased during the process of launching as a general holding company in 2017, as Lotte Confectionery, Lotte Shopping, Lotte Chilsung Beverage, and Lotte Foods underwent spin-offs and mergers."

Oh Ki-hyung pointed out, "At the time, Lotte Holdings disclosed that selling treasury shares to affiliates would not significantly dilute share value. However, after the sale, minority shareholders' stake dropped by 2.2%, while Chairman Shin Dongbin and other related parties saw their combined stake rise by 2.66%." He further questioned, "If Chairman Shin Dongbin and related parties' voting rights were to decrease by 2.2%, would Lotte still make such decisions?" Ko avoided a direct answer, saying, "Various factors need to be considered."

Oh also noted, "Lotte Holdings is reportedly considering selling an additional 15% of treasury shares to controlling shareholders and related parties. In this case, the directors' duty of loyalty to shareholders may come into play." Ko responded, "I fully understand your point. We will need to review what choices to make, considering all circumstances."

Meanwhile, during the audit, the low price-to-book ratio (PBR) of Lotte Holdings, at around 0.46, was also highlighted as a problem. Ko explained, "Lotte Holdings, by nature, holds more than 90% of its assets in affiliate shares, but since the COVID-19 pandemic, these affiliates have underperformed, causing the market capitalization to drop and the PBR to remain low." Lee Soyoung, a member of the Democratic Party, stated, "A PBR below 1.0 for a listed company is financially abnormal, and efforts should be made to raise the stock price. We will closely monitor how Lotte Holdings disposes of its 27.5% treasury shares and ensure they are not used to benefit specific shareholders."