Having a chairman jailed for 30 months might seem bad. It’s the least of Lotte Group’s problems.

An angry Chinese government and owners that can’t stop squabbling are both bigger challenges for South Korea’s largest retail group, whose chairman Shin Dong-bin was sentenced to prison on Tuesday on bribery charges.

The loss of Shin will be temporary, and perhaps short-lived. Remember that Jay Y. Lee, heir-apparent at Samsung Group, was jailed for five years in August on similar charges, only to walk free last week after his sentence was suspended on appeal.

That’s why the rout in shares of listed Lotte units is unlikely to last: Shin is sure to appeal, and while waiting will probably continue to run the group from prison, if the example of previously jailed chaebol heads is anything to go by.

The deeper problem lies in strategy. In February last year, Lotte offered up a golf course to house a controversial U.S. missile defense system that had enraged China. Beijing retaliated by barring tour groups from visiting South Korea, a move that hurt sales at Lotte’s duty-free stores and hotels. While the ban has since been eased, Lotte remains on China’s blacklist. 

Most of Lotte’s stores in China were shut for alleged fire-safety violations, hammering sales in a market that had been one of its biggest targets for growth. Five months ago, the group hired Goldman Sachs Group Inc. to sell its Lotte Mart convenience stores and supermarkets. No buyer has yet emerged. 

A theme park Lotte was building in the northeastern city of Shenyang has also been halted.

To top it off, Shin’s imprisonment has given renewed impetus to a family feud for control of the chemicals-to-hotels group founded by the Shin brothers’ 95-year-old father. Under Japanese law, the Lotte chairman would have to step down as head of the company’s Tokyo-based unit Lotte Holdings Co., where elder brother Shin Dong-joo owns 33.3 percent of the voting rights. Shin Dong-joo has called for the “prompt resignation and dismissal” of his sibling.

The turmoil surrounding Shin’s jailing, its China travails and the family power struggles are casting doubt on a revived plan to sell shares publicly in Hotel Lotte, after a $4.5 billion IPO was derailed in June 2016 by the founding family’s embroilment in corruption inquiries. It may also hamper efforts to reform the chaebol’s structure by setting up a holding company.

Shin’s incarceration may have been a surprise to the company, which had made arrangements for him to travel to the Winter Olympics now underway in South Korea. But it shouldn’t be for investors. The problems at Lotte Group run deep, and have been festering for some time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

To contact the author of this story: Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net.

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net.

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