Hanshin Rating "Hotel Lotte Credit Rating Outlook Downgraded to 'Negative'"

Decline in Hotel and Duty-Free Market Demand Due to COVID-19
Financial Burden Expected to Persist Due to Delays in Initial Public Offerings

[Asia Economy Reporter Minji Lee] Korea Ratings maintained Hotel Lotte's unsecured bond credit rating at AA but changed the outlook from 'Stable' to 'Negative' on the 16th.

Researcher Soyoung Park of Korea Ratings said, "Due to the spread of the novel coronavirus infection (COVID-19), demand in the hotel and duty-free markets has sharply declined," adding, "This year's operating performance is expected to be significantly poor, and even after the end of COVID-19, the speed and extent of performance recovery remain uncertain."

Although Hotel Lotte has diversified its business base to include overseas duty-free, domestic and international hotels, and resorts, the portfolio effect from business diversification is expected to be limited due to social distancing and the spread of COVID-19.

Some expect an early recovery compared to other industries since proxy buyers from China account for an absolute majority of demand. The proportion of proxy buyers targeting the Chinese domestic market is estimated to be about 60% of domestic duty-free merchants, and recently, the spread of COVID-19 in Korea has been calming down.

However, considering the economic recession caused by the COVID-19 shock and the possibility of a slowdown in China's economic growth rate, uncertainties are expected to persist. Researcher Soyoung Park said, "If demand from proxy buyers decreases due to a contraction in Chinese household consumption, the downtown duty-free market will slow down," adding, "Operating performance deterioration is expected to increase borrowing burdens, and further delays in the initial public offering (IPO) will sustain a high level of financial burden."

On the same day, Korea Ratings also expressed a negative view on Busan Lotte Hotel in the short to medium term. Busan Lotte Hotel operates downtown and airport duty-free shops and hotel businesses in Busan. Researcher Soyoung Park diagnosed, "Due to a larger drop in demand compared to downtown duty-free operators in Seoul, operating performance will be significantly poor," and "Borrowing burdens will increase further due to acquiring affiliate shares."

Finally, Korea Ratings stated, "We plan to monitor the trend of the COVID-19 situation, recovery of domestic duty-free market demand, competitive landscape, profitability of major businesses, and changes in financial burdens," adding, "If global economic and travel demand recover and financial stability is strengthened through an IPO, the rating outlook will return to stable."

This content was produced with the assistance of AI translation services.