In an effort to alleviate its escalating financial woes, Korea Electric Power Corp. (KEPCO), South Korea’s state-owned utility, has raised approximately 350 billion won ($268.6 million) through the sale of a 15% stake in its subsidiary, KEPCO Engineering & Construction Co. (KEPCO E&C). This transaction was facilitated through a price return swap deal with Mirae Asset Securities Co., involving the sale of 5,645,094 shares at 62,000 won each.
This strategic move reduces KEPCO’s ownership in KEPCO E&C to 51%, retaining its position as the largest shareholder and maintaining control over the subsidiary’s management. The Korea Development Bank follows as the second-largest shareholder with a 32.9% stake.
This stake sale is critical for KEPCO, as the company looks to navigate a challenging financial landscape. KEPCO’s debt has soared beyond 200 trillion won, and the funds from this sale are expected to support new corporate bond offerings this year, crucial for managing its debt.
Under current regulations, KEPCO can issue bonds up to five times its equity capital and reserves. However, an operating loss of about 6 trillion won in 2023 has potentially reduced its bond issuance limit, complicating its financial strategy. The company faces the immediate repayment of 5.6 trillion won in bonds if it cannot issue new bonds after its book closure in March.
To avert this crisis, KEPCO secured interim dividends worth about 3.2 trillion won from its subsidiaries last year, which partially offset its operating loss. Now, with the successful stake sale, KEPCO is better positioned to increase its bond sales this year.
Despite these measures, industry experts warn that relying on subsidiary dividends and stake sales are short-term solutions with limited efficacy in addressing KEPCO’s deep-rooted financial issues. Since 2021, the company has accumulated a loss of approximately 40 trillion won, trapped in a cycle of increasing bond sales and growing debt. This precarious financial situation has already led to a downgrade in KEPCO’s credit assessment by Moody’s in May last year, reflecting the urgency for more sustainable financial strategies.
