Did Government Influence Work...? KEPCO Bonds Drop Below 4% Interest Rate in 3 Months

[Asia Economy Sejong=Reporter Dongwoo Lee] The interest rate on KEPCO bonds fell to the 4% range for the first time in three months. This is largely attributed to the government's recommendation to refrain from issuing bonds as part of its bond market stabilization policy, leading to a pause in issuance.

According to the Korea Financial Investment Association on the 16th, the issuance rate for 3-year KEPCO bonds recorded 4.920% as of the previous day. The KEPCO bond interest rate fell to the 4% range for the first time in about three months since September 21 (4.830%). The KEPCO bond interest rate, which was in the low 2% range last December, continued to rise until it reached an annual peak of 5.825% on October 21 this year.

The decline in KEPCO bond interest rates this month was supported by the government's strong policy to disperse bond issuance volume. When AAA-rated high-quality bonds with an average interest rate close to 6% flooded the market at an average of 2 trillion won per month, the government, concerned about market disruption, diversified KEPCO's funding channels to bank loans and others. KEPCO newly issued 1.38 trillion won worth of corporate bonds at an average interest rate of 4.64% by the 12th of this month. This is a decrease of 1.03 percentage points compared to last month (5.67%).

However, since the government continues its interest rate hike policy, the high interest rate phenomenon of KEPCO bonds is expected to persist for the time being. With the passage of the KEPCO Act amendment bill in the National Assembly yesterday, which expands the issuance limit of KEPCO bonds, the industry expects KEPCO bonds to continue to serve as KEPCO's main funding channel for the time being. Earlier, the National Assembly's Industry, Trade, Energy, Small and Medium Business Committee approved the KEPCO Act amendment bill to increase KEPCO's corporate bond issuance limit from twice to five times the total amount of capital and reserves.

The key variable is the determination of the electricity rate increase next year. Because sales will increase by the actual amount of the electricity rate hike, profitability will improve, reducing deficits. The Ministry of Trade, Industry and Energy stated that an increase of 50 won per kilowatt-hour (kWh) is necessary for next year's electricity rate hike. Minister Chang-yang Lee of the Ministry of Trade, Industry and Energy attended the full meeting of the National Assembly's Industry, Trade, Energy, and Small and Medium Business Committee yesterday and said, "We will try to reflect the rate in consultation with the price authorities as much as possible," adding, "We will proceed with the increase step by step within the possible range."

Busy KEPCO
(Naju=Yonhap News) Reporter Cheon Jeong-in = The government and Korea Electric Power Corporation (KEPCO) raised the final fuel cost adjustment rate for the fourth quarter (October to December) by 3 won compared to the previous quarter. This is the first electricity rate increase in about eight years since November 2013. The photo shows an employee entering the lobby of KEPCO headquarters in Bitgaram Innovation City, Naju, Jeollanam-do. 2021.9.23
iny@yna.co.kr
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