Lotte Retreats From China as Beijing-Seoul Dispute Dents Business

By Eun-Young Jeong Features Dow Jones Newswires

South Korean conglomerate Lotte Group is conceding defeat for its Lotte Mart business in China, with plans to sell stores there after heavy losses brought on by diplomatic tensions between Seoul and Beijing.

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Lotte said it has selected Goldman Sachs to manage a sale that marks the latest setback for South Korean companies hit by boycotts and bans in China, amid anger over the deployment of a U.S.-made missile-defense system in South Korea.

The sale plan is still in its preliminary stages. A Lotte spokeswoman said the company hasn't decided on whether to sell its entire hypermart and supermarket business or individual stores in China. A spokesman at Goldman Sachs in Seoul declined to comment.

South Korea's government identified last year a golf course owned by Lotte as a site for the missile-defense system, which put the country's fifth-largest conglomerate--whose interests include luxury hotels, chemicals, chewing gum and duty-free stores--in the center of a fraught geopolitical dispute. The battery was installed in April.

Beijing opposes deployment of the missile-defense shield in South Korea, citing its radar's ability to reach into Chinese territory. Seoul and Washington say the system, known as Terminal High-Altitude Area Defense, or Thaad, is needed to defend South Korea and the 28,500 U.S. troops based there from North Korean leader Kim Jong Un's expanding weapons program.

Since March, Lotte has closed 87 of its 99 hypermart stores in China, where business suffered after Chinese officials began suspending operations at some Lotte stores in the country--citing violations of fire and safety codes--and halted construction on new projects.

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The company estimates it has lost 500 billion won ($441.7 million) from the business suspensions. It has injected 700 billion won as emergency-operation funds to quell the situation.

Aside from its hypermart business, Lotte operates more than 20 affiliates in China, which run shopping malls, confectioneries and chemical plants. The Lotte Mart business is the largest and makes up about 30% of the company's revenue in China, its largest overseas market. The Lotte spokeswoman said the company's other businesses will continue to operate as before.

In an interview with The Wall Street Journal in March, Lotte Group Chairman Shin Dong-bin said China was too important a market to give up. "We definitely want to continue our business in China," said Mr. Shin.

Automobile maker Hyundai Motor Co. is another South Korean company hard hit by tensions between Seoul and Beijing, suffering temporary production halts and poor sales.

In its most recent quarterly earnings report, Hyundai reported a 28.8% drop in car sales in China from the same period last year. Between March and July, the company's car sales in the country slid 55%.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

September 14, 2017 08:04 ET (12:04 GMT)