Seoul advises public institutions, lenders to keep domestic debt issues to minimum

[Photo by Yonhap]

South Korean authorities struggling to revive debt market have asked public and financial issuers sharing high-quality investment grade of sovereign credit to refrain from domestic bond issues until local market recovers from panic over default by a municipal debt.

The Ministry of Economy and Finance has asked the Ministry of Trade, Industry and Energy to advise Korea Electric Power Corp. (KEPCO), Korea Gas Corp. and other public utility firms to raise debt overseas or seek bank loans instead of aggravating the market with new bond issues, according to a high-ranking financial ministry official on Sunday.

The surge in bond issues by public utilities amid struggles to manage operations from soaring fuel cost have worsened the glut in the debt market while prices have tumbled on rapid rises in base interest rates.

KEPCO with AAA credit rating has issued 23 trillion won ($16 billion) so far this year.

To ease money market stress, the finance ministry will also sharply reduce new issues to reduce supply and help normalize prices.

The Financial Services Commission has ordered state-run banks to keep issues to the minimum for the time being. The top financial regulator also advised private-run banks to raise their needed funds abroad.

Until recently, Korean financial authorities restricted local banks and other financial service firms from seeking foreign debt due to foreign exchange hedging risk amid falling Korean won versus the U.S. dollar. But liquidities woes of smaller companies that can cause chain default and financial risk have become more urgent.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]