Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
KEPCO's future dims due to delays in electricity rate hike
Electric meters in downtown Seoul / Yonhap
By Lee Yeon-woo
By Lee Yeon-woo
Korea Electronic Power Corporation (KEPCO) is facing a bleak future in its desperate efforts to recover from its financial crisis as a plan to raise electricity fees in the second quarter was held off. With mounting losses again projected for this year, the company may have to issue more corporate bonds, possibly negatively affecting the debt market.
Reflecting market anxiety, shares of KEPCO ended at 18,010 won ($13.69), Tuesday. The stock price of KEPCO soared to 22,450 won on Dec. 28 but has since experienced a continuous drop of 20.3 percent as of Monday, following the decision by the government and the ruling People Power Party.
KEPCO stabilizes the price of electricity by issuing corporate bonds, as it only recovers 70 percent of production cost under the current structure. As of March, KEPCO has already issued corporate bonds worth 7.6 trillion won.
KEPCO's corporate bonds have been referred to as a “black hole” in the market, absorbing liquidity with their high-interest rates. The energy ministry warned that the increased issuance of the KEPCO bonds could potentially strain the corporate bonds market and add to uncertainties in financial markets.
KEPCO also faces limits to its issuance of corporate bonds. Under current law, KEPCO is prohibited from issuing corporate bonds worth more than five times its own capital and reserves. It means KEPCO will no longer be able to issue bonds next year if its 2023 loss exceeds 5 trillion won.
The anticipated increase in international oil prices is fueling concerns. On Sunday, OPEC+ oil producers suddenly announced further cuts in oil production, placing additional pressure on KEPCO which is already suffering from price hikes caused by the war between Russia and Ukraine.
NH Investment & Securities expected KEPCO's operating loss to skyrocket from 8.6 trillion won to 12.6 trillion won in its recent report.
“Increasing electricity bills remains the only solution for KEPCO's financing. Future opportunities to discuss a rate hike will be in the end of June or September. However, such a hike seems distant as the consumers' burden from electricity bills is already at a maximum during the summer and winter,” said Lee Min-jae, an analyst from NH Investment & Securities.