Shares of public companies tanked under Moon

Prices of state-owned company shares dropped sharply during the four years of the Moon Jae-in administration — despite a generally bullish stock market.

Air conditioners on the side of a building in Jung District, central Seoul on June 21. On the news of the government freezing electric bills again, Korea Electric Power Corporation shares tumbled 6.88 percent on June 21 compared to the previous session. [YONHAP]

Prices of state-owned company shares dropped sharply during the four years of the Moon Jae-in administration — despite a generally bullish stock market.

According to the Korea Exchange, shares of seven listed state-owned companies on average dropped 10.2 percent as of June 24 compared to May 10, 2017, the day Moon took office.

During the same period, Seoul’s main bourse rose 44.8 percent. The Kospi set a new record June 24, closing at 3,286.10, up 9.91 points from the previous session.

Generally, more than 50 percent of so-called state-owned companies are owned by the government or other public institutions.

Shares of Kangwon Land, operator of the only casino in the country that is open to Koreans, closed at 27,100 won ($24) on June 24, down 28.3 percent compared to May 10, 2017.

Casino and hotel companies in general had weak earnings last year due to the coronavirus pandemic.

Grand Korea Leisure declined 24.6 percent during the same period and closed 16,700 won on June 24.

For state-owned company, government policies often have an impact on their shares prices.

Korea Electric Power Corporation (Kepco) is a prime example. On June 21, Kepco announced it would not raise energy prices in the third quarter. It said it was told by the Ministry of Trade, Industry and Energy not to raise electric bills for the “sake of households who have suffered during the Covid-19 pandemic and to avoid fueling inflation.”

On that news, Kepco shares tumbled 6.88 percent Monday compared to the previous session.

In 2018, Kepco reported an operating loss of 208 billion won, its first loss in six years. In 2019, its loss grew to 1.28 trillion won as the government kept the power company from raising electric bills.

Last year the company was able to report an operating profit of 4.09 trillion won thanks to lower international crude prices. But the company is likely to start reporting losses again this year.

Its shares closed at 24,750 won on June 24. That's a 42.6 percent decline from May 10, 2017's 43,150 won.

“Kepco’s 2021 operating profit will sharply decrease this year,” said Moon Kyeong-won, an analyst at Meritz Securities.

Kepco KPS, an affiliate of Kepco, declined 26.7 percent during the same period.

Shares of Korea Gas Corporation are showing an upward trend with its expansion of hydrogen business in line with the government’s carbon emission commitments. But the shares were still down 18.8 percent as of June 24 compared to 2017.

Korea District Heating Corporation’s shares plunged 38 percent during the same period.

Only one public company showed a rise in share prices under the Moon administration: Kepco Engineering & Construction (Kepco E&C), an affiliate of Kepco that designs nuclear power plants.

Shares of Kepco E&C, which were trading at 23,600 won on the day Moon took office, closed at 49,050 won on June 24, a 107.8 percent hike.

The shares have been rising since Moon’s summit with U.S. President Joe Biden last month.

“Cooperation between Korea and the United States in nuclear energy will help Kepco E&C to win nuclear power projects from foreign countries including the Czech Republic, Poland and Saudi Arabia,” said Jung Hye-jung, an analyst at KB Securities.

Analysts bemoaned the impact of government policies on shares prices of state-owned companies.

“This is the result of the management of state-owned companies, which have focused more on being relevant to public interests than efficiency,” said Park Young-bum, a professor of economics at Hansung University. “State-owned companies that are listed are obliged to satisfy shareholders by managing the companies effectively.”

“But share prices reflect government policies and investors who have invested in those companies are losing money.”

State-owned companies have been a popular choice for retail investors in the past as they were known to be safe and pay good dividends – but not anymore.

“In the past, state-owned companies were attractive investment options for individual investors as they had solid financial structures and tended to distribute high yields,” said a head of an investment strategy team at a brokerage house. “But now they are very unpredictable and have become not a good choice for long-term investments.”

BY SARAH CHEA,IM SOUNG-BIN [chea.sarah@joongang.co.kr]