By Joyce Lee
SEOUL (Reuters) - South Korean prosecutors raided the offices of Lotte Group, the country's fifth-largest conglomerate, and several affiliates on Friday, dealing a further blow to its hotel unit's planned IPO, billed as the world's biggest this year.
Hotel Lotte, one of the affiliates raided, cut the size of the deal to a maximum $4.5 billion on Tuesday and pushed back the listing to July after prosecutors launched a bribery investigation into a director.
Late on Friday, the group's Lotte Chemical Corp unit said it withdrew from the bidding for U.S.-based Axiall Corp, which went to a rival suitor for $2.33 billion, citing "the difficult situation Lotte has faced in Korea recently and heated competition".
About 200 investigators searched 17 locations including group headquarters in central Seoul and the homes of Chairman Shin Dong-bin and other key executives, local news agency Yonhap reported, citing the Seoul Central Prosecutor's office.
The raids mark a fresh bout of turbulence for Lotte, one of the best-known of the big family-run conglomerates, or chaebol, that dominate Asia's fourth largest economy, after it was rocked by a bitter succession feud last year.
A Lotte official, who declined to be identified due to the sensitivity of the matter, said Friday's raids had not been expected. It was unclear whether there was a direct connection with the bribery probe into Hotel Lotte.
Three people with direct knowledge of the matter told Reuters that Friday's raids were part of an investigation into a possible slush fund. They also declined to be identified.
One person said prosecutors were also looking into possible breach of trust related to asset transactions among affiliates. Some executives had been barred from leaving the country, one of the sources added.
The Seoul Central Prosecutors' Office declined to comment.
A Lotte Group spokesman on Friday declined to comment on the reason for the raid, when asked whether it concerned a possible slush fund. He noted, however, that the situation was difficult given the IPO plans and Lotte Chemical's Axiall bid.
"While cooperating with the investigation, we will do our best to operate normally," he said.
LISTING DEADLINE
A person working on the Hotel Lotte IPO, who declined to be identified, said bankers were awaiting further information.
"It complicates things considerably, of course," the person said. "We don't know what they were looking for, what they took."
At the very least, another delay in its listing plans looms large.
According to bourse rules, the deadline for Hotel Lotte to list is July 27, six months from the preliminary approval for the IPO. If it needed to refile its prospectus to warn investors about risks from Friday's probe, which appeared likely, it would probably not be able to meet that deadline, an exchange official told Reuters on Friday.