Hong Kong-based PEF Affinity Equity to acquire control of Lotte Rental

Affinity Equity Partners, a Hong Kong-based investment firm, will acquire a controlling stake in South Korea’s No. 1 car rental and leasing company Lotte Rental Co.

According to industry sources on Friday, Lotte Group will hold a board meeting later in the day to name Affinity Equity the preferred bidder to buy 60.67% of Lotte Rental from two Lotte affiliates.

Lotte Hotel Co. and Busan Lotte Hotel currently own 37.8% and 22.83% of Lotte Rental, respectively.

Lotte Group and Affinity Equity will sign an MOU on the stake sale and purchase after the board meeting, sources said.

The two parties are said to be in the final price negotiations.

Industry officials said the sale price of the 60.67% stake is estimated in the mid-1 trillion won ($706 million) range, putting the company’s value at 2.5 trillion won — double the firm’s current market capitalization of 1.2 trillion won.

INCREASED CLOUT IN KOREA’S CAR RENTAL MARKET

In 2014, Affinity Equity tried to take over Lotte Rental but lost out to retail juggernaut Lotte Group, which acquired then-KT Rental for 1.2 trillion won the following year.

If the latest deal to acquire Lotte Rental is completed, Affinity will control Korea’s two largest car rental firms.

In June, the Hong Kong private equity firm bought SK Rent-a-Car Co., Korea’s No. 2 car leasing company, for 820 billion won from SK Networks Co.

Lotte controls 21% of the Korean car rental and leasing market, while SK has a 15% market share. The two firms compete with car-sharing firms such as SoCar and GreenCar.

LOTTE FACES LIQUIDITY SQUEEZE

The sale of Lotte Rental comes as Lotte Group struggles to secure liquidity by selling off non-core assets amid concerns about the group’s financial stability.

Last week, the retail-to-chemical conglomerate’s holding firm Lotte Corp. replaced 21 chief executives across its affiliates and slashed executive jobs by 22% in a sweeping leadership reshuffle.

The reshuffle came amid widespread rumors that Korea's sixth-biggest business group by assets is facing a liquidity crunch, driven by poor performance in its retail and chemical subsidiaries, including Lotte Chemical Corp.

Lotte Hotel, Lotte Rental’s largest shareholder, plans to use the proceeds from the sale of the car leasing unit to improve its financial structure.

The sale is also expected to expedite Lotte Hotel's planned initial public offering.

Write to Jun-Ho Cha at chacha@hankyung.com
In-Soo Nam edited this article.