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| Korea Electric Power Corp. headquarters in Naju, South Jeolla Province / Korea Times file |
Commercial lenders will grant up to 10 trillion won ($7.2 billion) in loans to Korea Electric Power Corp. (KEPCO) before the year's end, to limit further financial market dislocation sustained by top-rated, government-guaranteed bonds issued by the state-run energy firm, according to market participants, Wednesday.
The government-recommended measure is intended to help KEPCO find a line of credit with banks for operating funds, instead of issuing more AAA-rated bonds, which have almost exclusively absorbed investment funds over the past few months.
This measure in turn will lower the recent sharp increase in corporate bond yields, stabilizing the short-term market turbulence, the government said.
Data from the Bank of Korea showed that the spread between three-year AA- corporate bonds and government-issued bonds was 1.14 percentage points on Oct. 14 ― the widest since September 2009 during the global financial crisis. The wider the figure, the harder it is for firms to find a line of credit through bond issuance.
Measures
Under the recommendation, KEPCO will borrow at least 2 trillion won in four installments at a rate of mid- to high-5 percent, lower than the market rate that is nearly touching 6 percent. The amount borrowed will be increased to 3 trillion, depending on the needs of the state-run firm in the weeks to come.
The combined 18.3 trillion won of KEPCO bonds issued in the first nine months of this year accounted for over a third, or 36.7 percent, of credit bonds in the local financial market.
The figure is well over the 11.7 trillion won issued throughout last year. The issued total inched further up to 23.9 trillion won as of Nov. 6.
KEPCO has resorted to issuing the top-rated bonds to help offset its snowballing operating losses, which market watchers say will exceed 40 trillion won this year, far greater than the 30 trillion won projected a few months earlier.
