Financial Soundness Worsening

KEPCO's outstanding corporate bonds have soared by more than 10 trillion won over the past four years.

KEPCO's outstanding corporate bonds have soared by more than 10 trillion won over the past four years. The increase is blamed on a rise in oil and liquefied natural gas (LNG) prices and the burden imposed on the company to promote renewable energy businesses. As a result, KEPCO's deficit has ballooned, worsening its financial situation.

KEPCO's corporate bond balance stood at 32.1 trillion won as of Nov. 19, according to KOSCOM, up 4.2 trillion won from 27.81 trillion won at the end of 2020. It stood at 20.85 trillion at the end of December 2017.

The size of KEPCO’s short-term paper issuance also increased fast. KEPCO's balance of commercial papers (CPs) and electronic short-term bonds rose from 400 billion won at the end of December 2017 to 2.6 trillion won as of Nov. 19, 2021. In about four years, the size of short-term papers grew by more than 2 trillion won.

KEPCO sold its headquarters site in Samseong-dong, Seoul, to Hyundai Motor Group for 10.55 trillion won in September 2014. Since then, the company had stopped issuing corporate bonds and continued net repayment. KEPCO’s corporate bond balance, which reached around 28 trillion won at the end of December 2013, fell to the 20 trillion won range in 2017.

However, the money from the site sale was spent fast. KEPCO resumed issuing corporate bonds in February 2017 and the balance of its corporate bonds started to soar.

KEPCO's performance has been worsening. KEPCO raised its electricity bill by three won per kwh in the fourth quarter of 2021, but has not been able to get out of deficits. Prices of raw materials such as international oil prices, LNG and bituminous coal have soared, but it is difficult for KEPCO to improve its business performance due to the government's control of electricity rates.

The unit prices of coal and LNG fuel surged 32 percent and 45 percent, respectively, in the third quarter. They are on the rise even in the fourth quarter. To make matters worse, the mandatory implementation ratio of renewable energy supply (RPS) was raised from 7 percent to 9 percent in 2021. RPS is a system that forces large power generation companies such as KEPCO to use renewable energy for a certain percentage of their total power generation.

Power generation companies have to use renewable energy as much as the amount set by the RPS system or meet the requirement by purchasing renewable energy certificates (RECs) from other power generation companies. KEPCO's REC purchase cost reached 2.247 trillion won in 2020 when the RPS ratio was 7.0 percent. The mandatory RPS ratio stands at 9.0 percent in 2021 and will ascend by 3.5 percentage points to 12.5 percent in 2022.

KEPCO's corporate bond maturity dates are concentrated on the next five years. It has to repay 4.69 trillion won in corporate bonds next year. Maturing bonds will amount to 4.96 trillion won in 2023, 4.3 trillion won in 2024, 2.32 trillion won in 2025 and 5.5 trillion won in 2026. In other words, about 67 percent of the company's corporate bond balance (21.32 trillion won) will mature within the next five years.

KEPCO’s non-consolidated financial statements at the end of September of this year showed that its cash and cashable assets (including current financial assets) added up to only 1,737.3 billion won.

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