Debt market questions how KEPCO’s new bonds sell at below 6%

State utility Korea Electric Power Corp. (KEPCO) which has been regularly issuing debt to sustain business amid staggering losses from spike in energy purchase cost has managed to raise new debt below 6 percent despite its debt overload and worsening business conditions to raise speculation about collaboration to keep coupon level worthy of a state entity which should be more or less on par with sovereign debt yield.

On Oct. 28, it sold 290 billion won ($204.5 million) worth two-year bonds at a coupon of 5.9 percent and 120 billion won worth in three-year maturity at 5.99 percent. On Tuesday, 290 billion won worth two-year debts were priced at a coupon of 5.9 percent, and 40 billion won worth three-year papers at 5.9 percent.

Outstanding KEPCO three-year bonds yielded Wednesday at 5.662 percent, sharply higher than 4.123 percent yield of the government debt of the same maturity.

KEPCO chose to reduce the offering scale as bids ranged from 5.69 to 6.5 percent for two-year bonds and from 5.7 to 7 percent for three-year papers. KEPCO bonds selling above 6 percent or near 7 percent could raise scare about confidence in Korean debt, still fragile after the default declare on a municipal debt related to Legoland Korea project.

“In reality (given its poor business state and debt condition), KEPCO papers should sell above 6 percent. KEPCO instead opted to reduce debt offering to cap the coupon under 6 percent,” one banker said.

KEPCO has been offering 2 trillion won to 2.5 trillion won new debt monthly as its losses stretched to 14.3 trillion won in the first half and would likely be bigger in the second half since power purchase prices have been hitting record highs due to surge in fuel import cost.

By Kang Bong-jin and Lee Ha-yeon