Lotte Holdings said Tuesday that it has selected a consortium of MBK Partners and Woori Bank as the new preferred buyer of Lotte Card, amid legal irregularities surrounding former negotiations partner Hahn & Co.

The holdings unit of the Korean-Japanese retail conglomerate said in a disclosure that it had initially chosen local private equity fund Hahn & Co. as its preferred bidder on May 3, but that the priority period for negotiations had expired as of May 13.

As a result, Lotte decided to choose the MBK Partners-Woori Bank consortium as the new preferred bidder to negotiate the sale of Lotte Card.

The change comes as a Hahn & Co. executive has been accused of tax irregularities by the labor union of local telecommunications company KT over a past asset sale, with the prosecution launching an investigation May 8.

The accusations, if recognized by the court, would effectively make Hahn & Co. ineligible to become a majority shareholder of Lotte Card under Korea’s majority shareholder regulations.

Hahn & Co., the second-largest private equity firm in Korea following MBK Partners, had proposed buying an 80 percent stake in Lotte Card for around 1.44 trillion won ($1.25 billion). Lotte’s subsidiaries would become minority stakeholders.

Lotte Holdings said it would continue working with the MBK-Woori consortium on details of the contract.

Lotte Card is one of three financial units being sold by the retail conglomerate, alongside Lotte Non-Life Insurance and Lotte Capital.

The sale is taking place as part of Lotte’s steps toward adopting a holding company structure. Under Korean law, which mandates separation of financial and industrial capital, a holding corporation cannot possess financial subsidiaries.

Lotte, which established Lotte Holdings in October 2017, is required to let go of its finance units within two years, meaning the conglomerate must sell off its financial assets by October this year.

By Sohn Ji-young (jys@heraldcorp.com)