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| An electricity meter is fastened to a telephone pole in downtown Seoul, May 15. Yonhap |
Moody's lowers KEPCO's rating amid financial strain
By Lee Yeon-woo
International credit rating agency Moody's has recently downgraded the baseline credit assessment (BCA) of Korea Electric Power Corp. (KEPCO).
It moved from Baa2 to Baa3, which is the lowest within the agency's investment grading system.
"The downgrade of KEPCO's BCA takes into account Moody's assessment that the pace of recovery of KEPCO's financial metrics will be much slower than previously expected, given the low visibility of further increases in retail electricity tariffs or of further debt reduction," said Mic Kang, a Moody's Vice President and Senior Credit Officer.
Despite the lower evaluation, the agency maintained KEPCO's rating at the Aa2 level. It stated that the "high likelihood of the company receiving extraordinary support from the government of Korea (Aa2 stable) in times of need" led to the seven-notch uplift from the original BCA.
Still, the agency added that it could downgrade KEPCO's ratings if its debt-to-capitalization ratio increases to 85 percent or above, or if the relationship between the government and KEPCO significantly deteriorates. This indicates KEPCO's credit rating has nearly dropped to the speculative grade without the government's intervention.
This is not the first time that KEPCO's ratings have been downgraded by international credit agencies. Last May, S&P lowered KEPCO's standalone credit profiles from the lowest investment grade, BBB-, to the speculative grade of BB+, citing a massive deficit. Fitch held its rating at BBB-.
Unlike private corporations, KEPCO's BCA will not affect the issuance of corporate bonds due to a government guarantee. The long-term credit ratings from international credit agencies, which take this guarantee into account, are the same as Korea's national credit ratings.
However, market watchers caution against dismissing the downgrade made by international credit agencies, noting that, as Daishin Securities researcher Kong Dong-rak asserts, the "decline in credit profile serves as a warning sign to foreign investors about KEPCO's unfavorable financial condition."
Meanwhile, KEPCO's operating loss recorded 6.2 trillion won ($4.6 billion) for the first quarter of this year, following a loss of 32.6 trillion won last year. Even though the government announced a 9 won per kilowatt hour (kWh) increase in power rates in May, it is thought that these latest price hikes will not be sufficient for KEPCO to recover from its mounting losses.
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