Corporate Bonds 'Interest Rate Bomb'... The Scream of Deficit-Stricken KEPCO

3-Year Bond Yield Hits 3.641%, Highest This Year
New Issuance This Year 12 Trillion Won... Interest Alone 2 Trillion Won

Korea Electric Power Corporation (KEPCO), which has been urgently raising operating funds through corporate bonds, has fallen into severe financial distress as it faces a 'sharp rise in interest rates.' Investor sentiment has already been dampened due to the surge in corporate bond issuance since the beginning of the year, and now the interest rates on KEPCO's corporate bonds are soaring, adding to the burden of financing costs. With electricity rate adjustments also proving difficult, concerns are growing that KEPCO could be pushed into a liquidity crisis caused by a funding cliff.

According to the Korea Financial Investment Association on the 13th, the 3-year KEPCO bond yield reached an annual high of 3.641% as of the 11th. Although it slightly decreased from the previous day (3.585%), it has surged by 2.267 percentage points compared to one year ago (1.318%).

The sharp rise in KEPCO's corporate bond yields is largely due to the recent surge in government bond yields amid expectations of a strengthened tightening stance caused by domestic and international inflation concerns.

Additionally, the ballooning scale of KEPCO's corporate bond issuance since the beginning of the year has negatively impacted interest rates. As of the previous day, the amount of new corporate bonds issued by KEPCO for fundraising this year reached 11.94 trillion KRW. This surpasses the total corporate bonds issued by KEPCO last year (10.43 trillion KRW) in just four months.

The problem is that the more KEPCO increases its corporate bond issuance, the more its value declines, making it harder to secure operating funds. In fact, at the end of last month, KEPCO's 30-year bond issuance?the first in four years?failed to meet its target amount of 200 billion KRW, falling short by 70 billion KRW.

The rise in financing interest rates could also further deteriorate KEPCO's financial statements. According to the securities industry, KEPCO's interest expenses were 1.93 trillion KRW last year when it issued corporate bonds at an interest rate in the 2% range. This year's interest expenses are expected to exceed 2.31 trillion KRW.

This content was produced with the assistance of AI translation services.