KEPCO turning to bank for working capital amid tepid debt market

[Provided by Maekyung Media Group]

Korea Electric Power Corp. (KEPCO) struggling to operate deficit-ridden state power monopoly amid protracted pricy fuel import costs is tapping banks to borrow working capital as not to further disturb the debt market under supply stress.

At the same time, the government is mulling to hike power bills to ease its liquidity woes until international fuel costs soften.

The utility company has sent out requests for proposal to banks to study their borrowing rates and terms.

KEPCO has been unable to find enough demand for its debt offering. Yields of KEPCO bonds have neared 6 percent from 2 percent range, no different from bank lending rates. Worse, it has already used up most of its debt ceiling.

Under the state power corporation act, KEPCO can issue bonds about twice its capital and reserves, which comes to around 91.8 trillion won ($66.7 billion). The balance of debt issues has reached 64.7 trillion won worth, already over 70 percent of the limit.

The ruling party has proposed to stretch the debt ceiling to five to 10 times current level. The National Assembly Trade, Industry, Energy, SMEs and Startup Committee will review the agenda on Nov. 21.

Yoo Sung-kull, head of the National Assembly’s Special Committee on Livelihoods of the People, argued it was important for the government and parliament to move swiftly to stabilize the bond market.

At the same time, the Ministry of Trade, Industry and Energy is considering raising basic power rate by 40 won to 50 won per 1 kilowatt hour next year, which would be five times bigger than the rise of 9.8 won this year, as KEPCO is looking at annual operating loss of around 40 trillion won. The raises would be incremental as not to overburden consumers as inflation remains above 5 percent.

The debt ceiling stretch however would bode badly for the fragile debt market.

“KEPCO cannot sustain long with 2 trillion won to 3 trillion won worth bank borrowings,”’ said Yoon Won-tae, an analyst at SK Securities Co. ''KEPCO may have to go on issuing bonds unless gas prices sharply fall.”

KEPCO has issued 23.9 trillion won in long-term bonds alone as of October, making up 70 percent of this year’s offerings by public enterprise issuers.

On Tuesday, KEPCO sold two-year bonds worth 270 billion won and three-year papers worth 30 billion won both at a coupon rate of 5.99 percent. It sought 150 billion won in three-year offering, but had to settle for 30 billion won due to low demand.

By Song Gwang-sup, Kang Bong-jin, Cha Chang-hee, Chu Dong-hun and Kyunghee Park