Lotte Rental kicks off $360 mn IPO process, seeks $1.8 bn valuation

South Korea’s leading rental car company Lotte Rental Co. has kicked off an initial public offering process to raise some 400 billion won ($360 million) through the share sale, likely to happen in September at the earliest.

According to the investment banking industry, Lotte on Monday filed for a preliminary review by the Korea Exchange of its share listing plan. Given the usual procedure, the company is expected to receive approval in August and debut its shares on the main Kospi bourse in September if all goes smoothly.

Lotte Rental, which offers car rentals and leasing as well as used car sales, is known to be assessing its corporate value at around 2 trillion won ($1.8 billion).

Lotte, the country’s largest car rental company with an over 20% market share, is resuming the IPO process after shelving the plan last October amid a cooldown of the domestic share sale market.

If successful, the stock sale will ease the financial squeeze of its parent Hotel Lotte Co., reeling from the fallout of the COVID-19 pandemic.

The IPO is also expected to offer Lotte Rental’s financial investors, including the National Pension Service (NPS), an opportunity to exit from their investment through their stake sale.

In 2015, Hotel Lotte acquired the country's biggest car rental provider KT Rental, since rebranded as Lotte Rental, for 1.02 trillion won.

FINANCIAL INVESTORS TO POCKET DECENT RETURNS

Lotte Rental’s shares are currently owned by Lotte Group affiliates and financial investors. Hotel Lotte holds a 47.06% stake in the car rental business, followed by Hotel Lotte Pusan Co. (28.43%) and Lotte Non-Life Insurance Co. (4.9%).

The NPS, a major financial investor, owns 19.61% of Lotte Rental through a special purpose company called Growth Partner Co.

Lotte Rental’s estimated enterprise value of 2 trillion won is compared with its immediate local rival and the country’s second-largest rental car provider SK Rent A Car Co.’s market capitalization of 650 billion won.

In 2020, Lotte Rental posted an operating profit of 14.3 billion won on 2.28 trillion won in revenue.

The top Korean car rental and leasing company’s corporate value has been strengthened by the growing value of its car-sharing platform unit GreenCar, in which Lotte Rental has an 84.7% stake.

GreenCar, which has a fleet of some 9,000 cars and 3.5 million registered users, is Korea’s No. 2 car-sharing company following market leader SoCar, which runs 12,000 cars with 5 million members.

The market estimates GreenCar’s value at 500 billion won, about half the valuation of SoCar.

GreenCar’s corporate value was assessed at 350 billion won in 2018 when it attracted investment from oil refiner GS Caltex for a 10% stake.

Last year, GreenCar posted an operating profit of 3.6 billion won on 44.8 billion won in revenue. The company recently added auto sales to its business scope to enter the used car sales market.

OTHER LOTTE UNITS LINED UP FOR IPOs

Analysts said a successful IPO of Lotte Rental will be followed by other initial share sales of Lotte Group’s affiliates, including Hotel Lotte.

“Lotte Group has been preparing for IPOs of its affiliates since 2019 to raise funds and reshuffle the group’s governance structure,” said an investment banking industry official.

Lotte Group pushed for an IPO of Hotel Lotte in 2015 but dropped the plan amid adverse market conditions.

Other group affiliates lined up for an IPO include Lotte GRS Co., the operator of fast-food chain Lotteria; Lotte Cultureworks Co., which runs Lotte Cinema multiplex movie theaters; and Korea Seven Co., which operates convenience store chain 7-Eleven.

Write to Ye-jin Jun at ace@hankyung.com
In-Soo Nam edited this article.