After the integration of five power generation subsidiaries under Korea Electric Power Corporation (KEPCO), a large-scale corporate bond issuance is expected. That is because mega renewable energy project development, including offshore wind, requires massive financing. The government aims to increase the cumulative renewable energy installed capacity, which stood at 39.1 gigawatts (GW) as of the first half of this year, to 100 GW by 2030.
According to the Financial Supervisory Service's electronic disclosures on the 9th, the outstanding balance of corporate bonds issued by the five generation companies totaled 23.36 trillion won as of the end of the second quarter this year. By company, the outstanding balances are Korea Western Power (KOWEPO) 5.94 trillion won, Korea Midland Power (KOMIPO) 5.74 trillion won, Korea Southern Power (KOSPO) 4.59 trillion won, Korea South-East Power (KOEN) 4.45 trillion won, and Korea East-West Power (EWP) 2.64 trillion won.
If the five generation companies are combined into a single legal entity (tentatively named Korea Power Generation), the management of maturities for corporate bonds that each company has issued separately so far is expected to become a key issue. That is because issuance terms, repayment methods, and refinancing schedules (replacing already issued securities with funds raised by newly issued securities) differ.
Typically, when corporate bonds reach maturity, issuers use refinancing by issuing new bonds to repay existing ones, effectively pushing back the repayment deadline. Lee Sang-hyeon, an analyst at iM Securities, said, "In the case of gigawatt-scale offshore wind projects, trillions of won are required, so the integrated generation company will have no choice but to increase corporate bond issuance."
In the investment industry, some say that once the integrated generation company launches, financing terms for corporate bond issuance will improve compared with the past. It is said that bonds from the five generation companies were difficult to trade because issuance volumes were small and liquidity was limited. Even with high credit ratings, if issuance volume is small, bonds become shunned because holders struggle to find buyers when trying to sell before maturity.
Analysis suggests that if integration increases the size of corporate bond issuance, bond liquidity will improve and institutional investor demand could rise. The combined assets of the five generation companies total 67 trillion won. By total assets alone, that is larger than Hanjin (about 62 trillion won), which belongs to a large corporate group. The integrated generation company could become more attractive to investors in the bond market as asset size and issuance scale grow.
Kim Hyeong-ho, CEO of Korea Bond Management, said, "Power generation company bonds often do not sell in the brokerage market, so once bought, they are frequently held to maturity. If the combined entity gets bigger, interest rate terms could also become more favorable for the issuer."
The government is currently pushing to enact a special law to support restructuring of the five generation companies. Some of the companies argue the special law should include an increase in the corporate bond issuance limit for the integrated generation company. That is because increasing bond issuance would raise the debt ratio. As of the end of last year, the combined debt ratio of the five companies was about 122%. If a public institution's debt ratio exceeds 200%, it can be designated a "financial risk institution."
There is also an outlook that if the integrated generation company issues large-scale bonds, the bond issuance rates for general corporations could rise. Market funds could flow into KEPCO bonds, forcing general corporate bonds or specialized credit finance company bonds with relatively lower credit ratings to offer higher rates to raise funds.