Debt-ridden KEPCO issues $3.5bn in bonds over 2 months

Courtesy of Korea Hydro & Nuclear Power

State-run Korea Electric Power Corp. (KEPCO) has issued nearly 5 trillion won ($3.76 billion) in bonds over the past two months as it grapples with over 200 trillion won in debt.

According to sources from the financial industry on Tuesday, KEPCO has raised 4.6 trillion won through bond issuance since June, averaging 2.3 trillion won per month.

Last year, KEPCO issued 11.93 trillion won worth of bonds between January and September but halted further issuance due to concerns that a flood of KEPCO bonds could crowd out corporate bond markets.

Initially, KEPCO turned to corporate papers and short-term electronic bonds to raise funds. However, as interest rates fell, the company turned to the bond market in June.

Within two months, KEPCO‘s outstanding bond balance surged to 76.1 trillion won.

KEPCO is expected to continue issuing bonds in the second half of the year, with 10.3 trillion won in bonds maturing by December. Much of this is anticipated to be refinanced.

“The increased issuance of KEPCO bonds, along with public and special bank bonds, is pressuring the corporate bond market,” said a researcher at iM Securities Co. “The credit spread has jumped to 53 basis points (bp) from 43bp last month, indicating tighter corporate financing conditions.”

KEPCO’s bond issuance limit stands at about 11.5 trillion won. The company can issue bonds up to twice its capital and reserves, but a temporary measure in 2022 increased the limit to five times.

This measure is set to expire on December 31, 2027, after which the limit will revert to twice the capital and reserves by 2028.

Based on current figures, KEPCO will need to repay about 41 trillion won in bonds by the end of 2027.

To manage its debt, KEPCO must increase revenue from electricity sales. The government has announced plans to raise electricity rates after the summer, once high electricity consumption subsides. On Monday, Minister of Trade, Industry and Energy Ahn Duk-geun said the government is discussing the timing of the rate hike.