KEPCO blocked from issuing more corporate bonds

The Korea Times

The Korea Times

Finance

Sun, October 1, 2023 | 22:18

Economy

KEPCO blocked from issuing more corporate bonds

Posted : 2022-12-09 16:28

Updated : 2022-12-11 16:15

Korea Electronic Power Corporation (KEPCO) headquarters in Naju, South Jeolla Province / Newsis

Utility's shares soar on expected electricity rate hikes

By Anna J. Park

The stock price of Korea Electric Power Corporation (KEPCO) soared during Friday's trading session, as investors expected an increase in domestic electricity fees after the National Assembly voted down a bill a day earlier aimed at expanding KEPCO's upper limit in corporate bond issuance.

KEPCO shares ended at 21,000 won ($16.13) on Friday, up 8.53 percent from the previous trading session. It marked the highest daily increase since early last month, and was also the highest closing price since mid-August.

On Thursday afternoon, lawmakers voted down a revision bill of the Korea Electric Power Corporation Act during a plenary session of the National Assembly. Most lawmakers from the main opposition Democratic Party of Korea (DPK) opposed or abstained from voting on the bill designed to allow the public utility to issue corporate bonds worth up to five times its own capital. The current act permits KEPCO to issue corporate bonds worth up to two times its own capital.

With the rapid increase in global energy prices this year, the state-run electricity provider is expected to post an operating deficit of some 30 trillion won by the end of this year, as it refused to raise the local electricity rate due to inflation concerns. The company has been making up for the losses by issuing a massive amount of bonds. So far this year, KEPCO has issued over 23 trillion won worth of corporate bonds. Yet, due to the cap prescribed by the current act, KEPCO will no longer be able to issue more corporate bonds by April next year.

That's why the government and the company desperately needed the revision bill to be passed to raise the necessary money. Related government ministries, including the energy and finance ministries, held an emergency meeting on Friday and agreed that the revision bill is necessary to maintain KEPCO's liquidity. Both parties also said on Friday that they aim to submit the bill again and pass it by the end of this year, as the possibility of the state-run utility's insolvency is too much of a risk.

Despite the government and the parties' efforts to maintain the current utility rates, market analysts expect a hike in local electricity fees would be unavoidable in the end, and the rate hike would provide momentum for KEPCO shares to increase.

"The increased possibility of electricity fee hikes will have a positive impact on KEPCO shares' upward movement," Na Min-sik, analyst at SK Securities, said. "The local stock markets already forecast that a sharp increase of electricity rates would be unavoidable for KEPCO to make a turnaround."

annajpark@koreatimes.co.kr