7-Eleven’s operator Korea Seven hit by rating cut

The credit rating of Korea Seven Co., which runs the South Korean operations of the convenience store chain 7-Eleven, was downgraded to its lowest level after it acquired the domestic operations of Ministop for 322.5 billion won ($250 million) in 2022.

Korea Investors Service Inc. on Monday cut Korea Seven’s rating by one notch to A with a stable outlook, from A plus with a negative outlook.

It is the lowest rating ever for the company, a unit of Lotte Corp.

The rating agency, under Moody’s Investors Service, said the purchase of Ministop Korea has deteriorated Korea Seven’s financial health and there is little hope of its financial conditions improving in the near term.

In the first quarter of this year, Korea Seven reported an operating loss of 32.3 billion won on a consolidated basis, four times more than the previous year’s shortfall.

Its net borrowings ballooned to 890.2 billion won by the end of March, compared to 61.6 billion won at the end of 2018.

The rating agency also noted that combining the domestic operations of 7-Eleven and Ministop has barely created synergy in the fiercely competitive market, where GS25 and CU are vying for the top position.

Latecomer E-Mart 24 Inc. is making an aggressive push, threatening third-ranked 7-Eleven.

Mired by heavy debt, Korea Seven has held off on public bond issues since September 2021. Instead, it sold privately placed bonds to raise 20 billion won in two-year notes in 2022 and 90 billion won in three-year bonds last week.

To cover its funding shortage, it also tapped the primary collateralized bond obligation (CBO) market to secure 100 billion won last year.

The CBOs are backed by the state-run Korea Credit Guarantee Fund and used as a funding source primarily for small companies with difficulties in selling publicly traded bonds.

Write to Hyun-Joo Chang at blacksea@hankyung.com

Yeonhee Kim edited this article.