'Funding Difficulties' Korea Seven Raises 20 Billion Won... Also Burdened by Ministop Compensation Payment

Korea Seven Issues 20 Billion Won Private Bonds
Absorption Merger Announcement on 20th Next Month
'Ministop' Store Conversion Is Key

Korea Seven, the operator of convenience store chain Seven-Eleven, has faced increased financial burdens due to its acquisition of Ministop. After losing a damages lawsuit filed by the Seoul Metropolitan Government and being ordered to pay approximately 6.1 billion KRW, the company has moved to raise 20 billion KRW in funding to repay commercial paper (CP). With the deadline for completing the Ministop integration just a month away, around 100 stores have yet to remove the Ministop signage, raising the possibility of further legal disputes.

According to the Financial Supervisory Service's electronic disclosure system on the 23rd, Korea Seven held a board meeting on the 19th and resolved to issue approximately 20 billion KRW worth of two-year maturity private bonds. These bonds were acquired by Lotte Capital, with both the coupon and maturity interest rates set at 6.8%. Korea Seven is a company in which Lotte Holdings holds a 92.33% stake, with the remaining shares owned by the late Shin Kyuk-ho’s children: Chairman Shin Dong-bin (3.07%), Chairwoman Shin Young-ja of the Lotte Foundation (0.85%), and Shin Yu-mi (0.48%), former advisor of Lotte Hotel.

Due to deteriorating profitability, including an operating loss of 20 billion KRW up to the third quarter of last year, Korea Seven’s long-term credit rating was downgraded from ‘A+ (negative)’ to ‘A (stable)’. It appears the company has turned to Lotte Capital, a Lotte Group affiliate, for funding. Korea Seven plans to use the proceeds from this bond issuance to secure operating funds, specifically for repaying commercial paper (CP).

Previously, in November last year, Korea Seven lost a Supreme Court appeal related to unauthorized operations of convenience stores along the Han River, resulting in a damages payment ruling of nearly 6.1 billion KRW. At that time, the Supreme Court ruled in favor of the Seoul Metropolitan Government in two lawsuits filed against Korea Seven and Lotte CVS711, which acquired Ministop. Seven-Eleven and Ministop had each established stores along the Han River in 2008 and 2009, respectively, operating them for eight years under the condition that they would return the stores to Seoul City afterward. Although the store operation periods ended in 2016 and 2017, they continued unauthorized operations for about a year. Consequently, Seoul City forcibly reclaimed their operating rights and filed claims for damages, alleging that these companies profited from illegal operations in 2017 and 2018.

The Supreme Court ruling, issued six years after the lawsuit began, requires Korea Seven and Lotte CVS711 to pay 980 million KRW and 5.1 billion KRW, respectively, to Seoul City. Ministop and Seven-Eleven operated 11 and 16 convenience stores along the Han River, respectively. Although Ministop had fewer stores, the damages were more than five times higher because these were ‘prime stores’ with heavy foot traffic. Korea Seven now bears the burden of damages for unauthorized operations that occurred before its acquisition of Ministop in 2022.

Korea Seven plans to complete the merger by absorbing its subsidiary Lotte CVS711 (Ministop) by the 20th of next month. Until now, the two companies remained separate mainly due to franchisee issues rather than systems or organizational matters. The corporate integration cannot proceed unless Ministop stores are converted to Seven-Eleven. Since convenience store franchise contracts are typically renewed every five years, persuading franchisees is necessary for brand conversion. Additionally, the trademark licensing agreement with the Japanese Ministop headquarters will expire next month.

The biggest challenge is converting Ministop stores to Seven-Eleven. Korea Seven initially aimed for 100% conversion by the end of last year but failed to achieve this. As of the end of last year, the conversion rate was 90%, with about 300 Ministop stores remaining. As of the 23rd, around 100 stores still remain. If these stores are not converted, there is a possibility of legal disputes involving Korea Seven, the Japanese Ministop headquarters, and franchisees. A Seven-Eleven official stated, "The current conversion rate has reached 96%," expressing confidence that "the brand conversion is progressing smoothly, and successful integration is imminent."

Korea Seven plans to focus on creating synergy effects by strengthening brand competitiveness after the integration. In particular, leveraging the relatively spacious Ministop stores, the company has proposed expanding its own food-specialized platform, ‘Food Dream.’ Stores converted to Food Dream have seen sales increase by 10 to 20%.

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