KEPCO Borrowing to Repay Debt... Red Light on Fundraising Due to High Interest Rates

3-Year KEPCO Bond Interest Rate at 5.625%
More Than 2.5 Times Higher Than Last Year
KEPCO Bond Rate Comparable to Government Bonds
Concerns Over Tightening Corporate Financing

The corporate bond yields of Korea Electric Power Corporation (KEPCO) have been hitting record highs day after day, increasing pressure on the company’s fundraising efforts. Due to the rapid deterioration of investor sentiment in the bond market following the U.S. Federal Reserve’s interest rate hikes, KEPCO has fallen into a vicious cycle of issuing bonds with higher yields to secure funds.

According to the Korea Financial Investment Association on the 20th, the yield on KEPCO’s 3-year bonds reached an all-time high of 5.626% as of the previous day. This figure is more than 2.5 times higher than the same period last year (2.092%). The total amount of bonds issued by KEPCO this year reached 22.9 trillion won, a 121.9% surge compared to last year’s 10.32 trillion won. KEPCO has already issued corporate bonds four times this month alone, raising about 1.4 trillion won. As of last month, KEPCO’s cumulative corporate bond issuance stood at 52.4 trillion won, up 37.5% from 38.1 trillion won at the end of the previous year, and new issuances this year soared 109.0% to 21.8 trillion won.

The reason KEPCO has become heavily reliant on corporate bonds for operating funds is due to the entrenched deficit structure caused by the sharp rise in international energy prices earlier this year, which has made it a loss to sell electricity. According to the Korea Power Exchange, the average wholesale electricity price (SMP) for this month (1st to 20th) reached a record high of 251.68 won per kWh on the mainland. The daily average SMP has already exceeded 270 won per kWh, increasing KEPCO’s electricity purchase cost burden. Meanwhile, KEPCO’s electricity selling price remains at an average of around 140 won per kWh.

KEPCO Bond 3-Year Yield. (Graph=Korea Financial Investment Association)

The problem is that with KEPCO’s bond yields soaring, raising funds has become more difficult. Earlier in March, KEPCO planned to issue 200 billion won of 30-year bonds at a coupon rate of 3.3%, the highest rate at the time, marking the first issuance of such bonds in four years since 2018, but 70 billion won worth of bonds went unsold. This is why KEPCO raised the interest rates to the 4% range in June and to the 5% range last month. Industry experts warn that if global interest rate hikes continue, KEPCO’s corporate bond yields could reach the 6% range by the end of the year. This means the amount of bonds KEPCO will have to repay in the future will increase exponentially.

The rise in KEPCO’s bond yields is also raising concerns about a credit crunch for domestic general companies. Since KEPCO is issuing bonds with yields in the 5% range, comparable to government bonds, domestic companies with lower credit ratings must issue bonds at even higher yields to attract investors. KEPCO is currently pushing for a legal amendment to expand its issuance limit, as it faces the risk of being unable to issue corporate bonds starting next year, but the prevailing opinion is that this is merely a stopgap measure that only increases the deficit. KEPCO recorded a record operating loss of 14.3 trillion won in the first half of this year alone, and the industry expects losses to increase to 30.1 trillion won by the end of this year.

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