Debt issues by Korea’s state-owned companies hit 11-year high

South Korea’s state-owned enterprises raised the biggest net amount of bonds in 11 years in the first five months of this year as energy companies bumped up debt issues following a delay in increasing utility fees.

According to the Korea Financial Investment Association on Tuesday, net issuance of public corporation bonds amounted to 18.1 trillion won ($13.9 billion) in the first five months of this year. It is the largest amount in 11 years since 24.07 trillion won was raised during the same period in 2012.

Net issuance of bonds by state-owned enterprises from January to May has not exceeded 10 trillion won since 2013. Last year, however, debt issues reached 14.7 trillion won amid the public corporation bond crisis, and this year, issues increased by 23 percent from the previous year.

The figure includes only public corporation bonds and excludes other special bonds such as bank bonds, monetary stabilization bonds and mortgage-backed securities issued by the Korea Housing Finance Corp. Mortgage-backed securities have an underlying asset and are not considered as public corporation debt that are issued based on credit.

“Public institutions often execute projects that the government should carry out, which leads to a structure where the fiscal soundness of the government is relatively okay while the debt of public institutions increases,” said Kim Bong-hwan, a professor at Seoul National University. “If the debt of public institutions continues to increase without limit, it will eventually affect national credibility. Debt should be managed considering the profitability of public corporations.”

The Yoon Suk Yeol administration has been putting out efforts to manage the financial soundness of public corporations since its inauguration. There are challenges, however, due to the sharp rise in energy prices and sluggish real estate market.