KEPCO’s bond rates rise as Korea Inc. rushes to debt market

KEPCO [Photo by Park Hyung-ki]

Interest on Korea Electric Power Corp. bonds are rising this month as companies are rushing to raise funds after a slew of government measures helped to stabilize the debt market hit by rate hikes and concerns of an economic slowdown.

There are growing concerns that the supply burden, which was reported as a culprit of the local money market crunch during the second half of last year, could be repeated as financial institutions have been scrambling to raise funds, due to the risk of an economic recession. The supply of corporate bonds will likely increase, as well.

According to the investment banking (IB) sources on Tuesday, KEPCO sold two-year bonds worth 200 billion won ($157 million) at a coupon rate of 4.4 percent and three-year bonds worth 320 billion won at 4.5 percent. The government recently announced raising electricity fees by 13.1 won per kilowatt hour (kWh) in the first quarter, which fell short of the market expectations. Many experts project this could force the KEPCO to issue more bonds, which ultimately could lead to a surge in rates.

With growing market stability, KEPCO and its subsidiaries plan to issue bonds. Several IB industry sources said that KEPCO is expected to raise 500 billion won in debt Thursday and Korea Housing Finance Corp. plans to sell 200 billion won worth of bonds on Jan. 18.

In addition, the Korea Housing Finance is expected to issue additional bonds worth 2.46 trillion later this month. An investment finance expert at a securities firm said that “KEPCO’s bond sales today was only 300 billion won on higher interest suggests a slowdown in new debt sales. Typically, public enterprises aren’t active in the debt market at the beginning of the year, but there have been a slew of sales the market is showing signs of stability.”

Last month, KB Kookmin Bank, Shinhan Bank and Woori Bank issued bonds between 200 billion won to 500 billion won. [Photo by MK DB]

Banks have also resumed issuing bonds since the end of last year, despite the financial authority’s recommendation for a temporary halt. Last month, KB Kookmin Bank, Shinhan Bank and Woori Bank issued bonds between 200 billion won to 500 billion won. KB Financial Group and Shinhan Financial Group also announced plans to issue perpetual bonds.

Other companies are expected to conduct surveys for potential demand ahead of bond issuances this week. Among them, KT Corp. is looking at raising 150 billion won, Emart Inc. 200 billion won, POSCO 350 billion won and LG Uplus Corp. 200 billion.

The good news is that the two primary yields of short-term money markets, commercial paper (CP) and certificate of deposit (CD), are on a downward trend. The CP yield, which have declined since last month, fell 3 basis points from the previous to 5.15 percent on Tuesday. The CD rates closed down at 3.96 percent, down 2 basis points.