Arrest of Lotte chairman spark fears of leadership vacuum, shares tumble

The shock arrest of the head of South Korea's Lotte for bribery sent shares in group firms plunging on Wednesday as investors fretted about a leadership vacuum at a challenging time for the country's fifth-largest conglomerate.

The Seoul Central Court on Tuesday sentenced Lotte Group Chairman Shin Dong-bin to two years and six months in prison in a case tied to an influence-peddling scandal that has rocked the country's business and political elite.

Shin had widely been expected to get a suspended sentence at most.

His detention is expected to put a spanner in Lotte's attempts to streamline further and in investment plans that were designed to offset losses in China. It also leaves the door open for a family feud to reignite, analysts said.

"Lotte Group is currently in flux. It's businesses are mainly domestic. Shin has attempted to expand Lotte overseas by growing its chemical business and retail presence in Asia, but that is expected to grind to a halt - at least until the appeals ruling," said Park Ju-gun, head of research firm CEO Score.

Shares in Lotte Corp, the holding company of Lotte Group, tumbled more than 7 percent to its lowest in almost eight weeks, while flagship retailer Lotte Shopping slid 5.5 percent, marking its lowest point since early January.

Lotte Group said after Shin's arrest on Tuesday it will begin "emergency operations" to "put the minds of stakeholders at rest". Analysts have said they expect Hwang Kag-gyu, the co-CEO of the South Korean holding company, to take a leading role but that major decisions are likely to be put on hold.

Shin's appeals trial is expected to take months.