Lotte Rental CI

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South Korean conglomerate Lotte Group is seeking to sell Lotte Rental Co., one of its core subsidiaries and the country‘s leading comprehensive rental company, as concerns rise about its financial health.

According to sources from the investment banking (IB) industry on Thursday, Lotte Group plans to put Lotte Rental up for sale and hold negotiations with multiple potential buyers.

The conglomerate has reportedly selected a major IB firm to lead the sale.

“Lotte Group plans to sell a subsidiary worth more than 1 trillion won ($713.88 million) as early as next month to quell recent rumors of a financial crisis in the group,” said an industry official.

The sale will include approximately 60.67 percent of Lotte Rental’s controlling stake.

Lotte Rental‘s major shareholders include Hotel Lotte Co. (37.80 percent) and Lotte Hotel Busan (22.83 percent).

The sale price is expected to exceed 1 trillion won, given Lotte Rental’s market capitalization of 1.05 trillion won ($749.66 million) based on the closing price on Thursday.

Some estimates suggest a mid-1 trillion won price tag, given its leading position.

According to the Korea Rent-A-Car Association, Lotte Rental held a 21 percent share of the Korean rental car market in 2023, ranking first, followed by SK rent-a-car Co. (15 percent), Hyundai Capital Services Inc. (13 percent), and Hana Capital Co. (6 percent).

Industry insiders see that Lotte Group’s move to sell Lotte Rental is due to the poor performance of its mainstay businesses, such as retail and chemicals.

If the sale secures over 1 trillion won, it will provide liquidity to Hotel Lotte, which recently turned to losses. This could also help with Hotel Lotte‘s future initial public offering (IPO).

Korea’s rental car landscape, in the meantime, is expected to see significant changes with Lotte Rental up for grabs.

In the first half of this year, Hong Kong-based private equity firm Affinity Equity Partners Ltd. acquired SK rent-a-car for 820 billion won.

The IB industry predicts that multiple Korean and international private equity funds will participate in the bid.

According to Hana Securities Co., the Korean rental car market is expected to grow from 8.5 trillion won in 2023 to 10.4 trillion won by 2026.

The number of registered rental cars in Korea reached approximately 1.22 million units in 2023, accounting for 5.7 percent of total passenger car registrations.

This figure is projected to exceed 1.4 million by 2026.

Lotte Rental’s performance has been solid, with revenue increasing from 2.4 trillion won in 2021 to 2.7 trillion won in 2023 and annual operating profits consistently exceeding 300 billion won.

The rental car business model involves purchasing new vehicles using corporate bonds and loans, leasing them to customers for 3 to 4 years, and then selling them as used cars to generate profit.

Lotte Rental benefits from its large corporate status and high credit rating, allowing it to purchase vehicles at lower costs.

The company‘s revenue composition in 2023 included 63.6 percent from car rentals, 27.3 percent from used car sales, and 9.1 percent from business rentals.

Lotte Group acquired KT Rental Co. in 2015 for about 1 trillion won and renamed it as Lotte Rental.