+ A

Dongwha Duty Free’s future remains murky

Feb 24,2017
The status of Dongwha Duty Free remains unclear as it has yet to reach an agreement with Hotel Shilla about who will control the duty-free business.

Thursday was the second due date set by Hotel Shilla for Kim Ki-byung, chairman of Dongwha’s parent company Lotte Tour Development, to pay back his debt of 78.8 billion won ($69.2 million). The amount includes the 60 billion won principal loan borrowed in 2013 plus 11.5 billion won in interest. Dongwha was assessed an additional 10 percent for failing to repay its investment by the initial Dec. 23 due date.

Dongwha Duty Free’s financial troubles began in 2013 after Lotte Tour Development, suffered a huge loss from a failed development project in Yongsan District, central Seoul.

To save the company from a bankruptcy filing, Kim sold 19.9 percent of its 61.56 percent share in Dongwha Duty Free to Hotel Shilla with a put option where Hotel Shilla could sell back its shares after three years and collect on the investment.

Earlier this year, Lotte said Kim would transfer an additional 30.2 percent stake, or 543,600 shares, to Hotel Shilla. The contract had Kim’s 30.2-percent stake in the duty-free company as collateral.

Including the 19.9 percent that Hotel Shilla has acquired in 2013 and the 30.2 percent stake previously owned by Kim, Shilla becomes the largest stakeholder of Dongwha, which also entails management rights. However, Shilla has said it has no interest in owning the shares of the duty-free company and wants to be reimbursed.

“Our first-and-foremost objective is retrieving the money and we will continue discussions in this direction,” said a Hotel Shilla spokesman.

The feud between Hotel Shilla and Lotte Tour Development has led to speculation in the market that Dongwha might close if it fails to find an operator. Dongwha denied such rumors in a recent statement, stressing that it is still profitable and had an all-time sales record last year of 355 billion won.

Yet analysts are less confident about the future of the duty-free business. Dongwha opened in 1979 as the only duty-free shop in the nation’s capital but competition has risen in recent years; by the end of 2017, there will be 13 shops in the city. Additionally tension with China over the U.S. defense system deployment is likely to harm Korea’s duty-free business, of which roughly 70 percent of the consumers are Chinese.


BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]