KEPCO’s bond sales attracts $938 milllion in demand

Korea Electric Power Corp. headquarters in Seoul [Photo by Lee Chung-woo]

Korea Electric Power Corp. saw 1.23 trillion won ($938 million) in demand for its corporate bonds as the state utility company issued a new tranche of debt on Tuesday, raising concerns that the binge issuance of debt to cover its 33 trillion won loss last year may cause a potential risk to the market.

According to financial industry sources, KEPCO sold 270 billion won in two-year bonds and 260 billion won in three-year debt, after receiving bids worth a total 1.23 trillion won that were as much as three-times more it actually sold. The yields at issuance were set at 3.99 percent and at 4 percent, respectively.

On March 22, KEPCO received bids worth a total of 680 billion won—440 billion won for 2-year bonds and 240 billion won for 3-year bonds—for its bonds, with yields to maturity at 3.97 percent and 4 percent, respectively. Concerns are now being raised that more debt sales from KEPCO to cover its trillions-of-won in operating loss, may cause a concentrated flow of funds toward the utilities company and further increases the risk of causing the market weaken again.

SK telecom Co., which has an AAA credit rating, also saw more than 1 trillion won in demand for its bonds on Tuesday, indicating the market’s current favor for blue chip corporate debt. Analysts watch carefully publicly issued corporate bonds, especially from companies with AA ratings or above, as they have led the bullish trend in the corporate bond market since the beginning of this year.

The telecom giant’s offer of debt saw an estimated 1.18 trillion won in demand, far exceeding the planned issuance of 200 billion won. SK telecom’s initial plan was to issue bonds worth a total of 200 billion won, including 70 billion won with three-year maturity, 100 billion won with five-year maturity and 30 billion won with seven-year maturity. As it has now seen demand worth six times the company’s initial plan, SK Telecom is likely to up its corporate bond sale to the limit of 350 billion won.

Investors are watching closely the demand forecast for SK telecom’s corporate bonds, as it will be the first demand forecast for top-rated corporate bonds since recent jitters in global financial markets, such as the collapse of Silicon Valley Bank in California and the wipeout of additional tier 1 bonds at Credit Suisse Group AG following its forced merger.

The bullish trend in the corporate bond market up to mid-February began with another top-rated telecom company, KT Corp. The telecoms company issued its first corporate bonds of the year on Jan. 4 and received 2.88 trillion won in bids, far exceeding its expected demand of 150 billion won.