Utility stocks surge on expectations for rate hikes after passage of revised Commercial Act
A man walks past a multiunit house in Seoul with watt-hour meters displayed outside, June 23. Yonhap
Shares of Korea Electric Power Corp. (KEPCO) and Korea Gas Corp. (KOGAS) have soared amid expectations of utility rate hikes following the National Assembly's passage of a revised Commercial Act, industry officials said Friday.
According to the Korea Exchange, shares of KEPCO and KOGAS closed at 36,900 won ($27.10) and 47,350 won, respectively, Friday, up 2.79 percent and 8.11 percent from the previous trading day. Both stocks jumped as much as 8 percent during intraday trading, but KEPCO trimmed its gains by the close.
The surge of the state utilities is seen as a response to growing expectations that the government may no longer be able to keep electricity and gas rates artificially low.
Until now, the government — the majority shareholder in both firms — has capped public utility rates as a way to curb inflation and support low- and middle-income households, despite soaring global energy prices. Since the second quarter of 2023, rates have been frozen for eight consecutive quarters.
As a result, KEPCO has accumulated 200 trillion won in debt and recorded deficits totaling 30 trillion won. KOGAS has also supplied residential gas below cost, leading to overdue receivables exceeding 14 trillion won.
Under the revised Commercial Act, however, such government intervention could be considered an infringement of shareholder rights.
On Thursday, the National Assembly passed the amendment to the Commercial Act to strengthen minority shareholder rights and address the chronic undervaluation of the Korean stock market. It expands the fiduciary duty of corporate directors to serve not only the company but also its shareholders.
There are rising expectations for future energy pricing to place greater emphasis on profitability and shareholder value. The companies' accumulated deficits have been widely blamed for falling share prices and weakened dividend capacity.
Retail investors hold a relatively large proportion of shares in the two companies, with KEPCO at 36.83 percent and KOGAS at 42.07 percent.
Experts said listed public enterprises are now expected to strike a careful balance between avoiding breaches of trust and maintaining their public service responsibilities.
"Raising electricity and gas rates would strengthen the financial health of the two companies, which is a positive outcome for shareholders. However, for the public, it would mean a heavier cost-of-living burden," a business administration professor said, requesting anonymity. "It is highly likely that these companies will face a dilemma, along with a series of legal disputes."