Financial Black Hole KEPCO... This Month's Corporate Bond Issuance Hits Record High

As of the 22nd, 30.6 trillion KRW, Interest Rate 5.78%
Cumulative 30 trillion KRW Expected by Year-End
Concerns Over Market Tightening from KEPCO Affecting Commercial Banks

[Image source=Yonhap News]

Korea Electric Power Corporation (KEPCO) has issued more than 3 trillion won in corporate bonds this month, setting a record for the highest monthly issuance amount. Although the government urged KEPCO to restrain its bond issuance at the end of last month due to concerns about market disruption, the scale continues to increase. During the same period, loans from commercial banks reached 1.5 trillion won, raising concerns that KEPCO-driven liquidity tightening in the financial market could worsen by the end of the year.

According to the power industry on the 24th, KEPCO's corporate bond issuance through the 22nd of this month totaled 3.06 trillion won. The average interest rate on these bonds was 5.78%. This surpasses both the record issuance amount of 3 trillion won set in September this year and the highest interest rate of 5.73% recorded last month. As a result, KEPCO's cumulative corporate bond volume (long-term bonds) this year has swelled to 26.96 trillion won. If KEPCO continues issuing bonds, it is expected to exceed 30 trillion won by the end of this year. The total amount of bonds KEPCO must repay has surged to 65.61 trillion won.

KEPCO maintains that despite government recommendations, it has no choice but to continue issuing bonds to raise operating funds averaging 2.5 trillion won per month. According to the Korea Financial Investment Association, the issuance rate for KEPCO’s 3-year bonds peaked at 5.825% on the 21st of last month, then fell to 5.410% on the 15th of this month, but has recently risen again to 5.577%. This suggests that KEPCO has resumed raising interest rates to continue bond issuance.

The problem is that the liquidity tightening that began in the bond market is spreading like a ripple effect to commercial banks. KEPCO has decided, following government recommendations, to secure more than 2 trillion won in funds through bank loans by the end of the year. This month alone, KEPCO borrowed 600 billion won from Hana Bank and an additional 900 billion won from Woori Bank the day before, injecting a total of 1.5 trillion won. The loan interest rates are reported to be between 5.5% and 6.0% annually. The banking industry is concerned that if KEPCO continues to receive large-scale monthly fund injections exceeding 1 trillion won, liquidity in the financial market could tighten by year-end.

KEPCO plans to continue raising operating funds through corporate bonds and bank loans for the time being. To increase the issuance limit of KEPCO bonds, a partial amendment to the Korea Electric Power Corporation Act (KEPCO Act) recently passed the bill subcommittee of the National Assembly’s Industry, Trade, Energy, Small and Medium Enterprises Committee. Under the current system, the issuance limit for KEPCO bonds is restricted to twice the sum of capital and reserves, but the amendment raises this limit to five times. This effectively allows the government to enable KEPCO to continue raising funds through corporate bonds next year as well. Professor Yoo Seung-hoon of Seoul National University of Science and Technology said, "The amendment to the KEPCO Act allows KEPCO to catch its breath for the time being, but the more it increases bond issuance, the more the damage will inevitably spread to general companies."

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