KEPCO cuts new bond sale after power bill hikes

[Photo by Han Joo-hyung]

The South Korean market for top-rated AAA corporate bonds, commonly known as blue chip bonds, is anticipated to undergo a change, with reduced issuance of Korea Electric Power Corp. (KEPCO) notes and the anticipated surge in the issuance of mortgage-backed securities (MBS).

According to sources on Sunday, KEPCO plans to issue about 400 billion won ($305.6 million) worth of bonds in June, which is significantly less compared to the previous months.

KEPCO bonds, unlike regular corporate bonds, are guaranteed to be paid by the government.

The decision to reduce KEPCO bond issuance appears to be driven by recent developments, such as the approval of an electricity rate hikes for the second quarter, KEPCO’s announcement of an additional self-rescue plan worth around 26 trillion won, and the recent decline in prices of major power generation fuels such as coal and natural gas.

So far this year, KEPCO bonds have been issued in the amount of 10 trillion won, with bidding taking place weekly and even twice a week when issuance was frequent, such as in the second half of last year.

On the other hand, the Korea Housing Finance Corporation (HF) is expected to begin aggressive MBS issuance to finance its special Bogeumjari loans. The HF is scheduled to conduct MBS selling bids worth 2 trillion won.

The bids will be held on June 7 for 600 billion won, June 16 for 1.2 trillion won, and June 23 for 600 billion won.

Special Bogeumjari loans are housing mortgage loans that offer a fixed interest rate in the mid-to-high 3 percent range to homebuyers purchasing homes worth less than 900 million won, regardless of their income.

These loans provide a maximum loan amount of 500 million won. Since its introduction at the end of January, some 31 trillion won worth of these loans have been contracted by the end of April, accounting for about 80 percent of the total limit. If the entire limit is reached, the MBS issuance volume could increase up to 40 trillion won.