Korea Electric Power Corp. (KEPCO) sinking deeper in the red from soaring fuel import cost and cap on electricity charge raise has so far this year issued 13 trillion won ($10 billion) worth of debts, exacerbating oversupply in public bond market and weak debt sentiment.

How long the state utility company can sustain the snowballing red through debt remains uncertain due to policy bind from the launch of a new government, escalating inflation, and slowing economy.

KEPCO has sold debts worth 12.9 trillion won from January to April this year, sharply up from issues of 10.4 trillion won in 2021 and 3.5 trillion won in the same period last year.

With the state utility forecast to incur an operating loss close to 30 trillion won, debt issue this year could stretch to 40 trillion won.

Due to jump in issues this year, KEPCO was behind 17 percent of 237 trillion won in outstanding bonds of Korean public institutions as of April, up from 12.4 percent a year earlier. Its share jumps to 41 percent in April only.

The company has kept up net growth in debt sales since July last year, noted Kim Sang-hoon, analyst at Shinhan Investment Corp.

Due to oversupply, the quasi-sovereign issuer is selling debt at wider spread versus the benchmark government yield.

Its recent debt yielded higher than a bond of investment grade two notch lower.

KEPCO’s AAA rated debts selling cheaper than those public bonds rated AA could create the supply-demand imbalance in the local debt market. Companies of lower credit could find it difficult to sell new bonds or at fair rates.

If KEPCO indeed incurs an operating loss of 30 trillion won, it would use up almost all of its earnings savings and leave little left to finance future debt.

By law, the state utility firm is allowed to issue debts up to twice the amount of its equity and reserves. As of the end of last year, it had a room of about 40 trillion won in debt issues. But if the company ends up logging 30 trillion won in operating loss as analysts project now, the cap would halve.

The state utility firm is seeing its bottom line deteriorating rapidly due to the surge in fuel costs.

The system marginal price (SMP), referring to the price that KEPCO pays to electricity producers, gained 4.8 percent on month to 202.11 won per killowatt-hour (kWh) in April., according to the Korea Power Exchange, a quasi-government agency responsible for operating the electricity market and the electric power system.

It is the first time for the SMP to top 200 won per kWh since the agency opened in 2001.

SMP had hovered at 76.35 won last year but jumped 2.5 times in just a year to hit 197.32 won in February then marked fresh record high in just two months.

Share prices of KEPCO lost 0.7 percent to 22,700 won by Monday midday.

By Song Gwang-sup and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]