As special provisions for Korea Electric Power Corporation expire, debt limit to be exceeded by 2028… "Limit will be breached without legislative amendment"

Concerns are emerging that the outstanding balance of bonds (total principal of unpaid bonds) planned by Korea Electric Power Corporation, a major issuer in the bond market, will exceed the statutory cap starting in 2028, after the expiration of the special provisions for its issuance. Korea Electric Power Corporation has been covering losses resulting from surging international fuel prices with bonds, and its outstanding bond balance is expected to continue growing due to investments in power grid expansion and renewable energy connection facilities.

The scale and capacity of Korea Electric Power Corporation's bond issuance are cited as variables affecting bond supply and demand. This is because if Korea Electric Power Corporation bonds absorb investment demand, the issuance conditions for corporate bonds from general companies could become unfavorable. It is known that Korea Electric Power Corporation is pushing forward government consultations regarding the limit on its outstanding bond balance.

According to the Budget Policy Office of the National Assembly on the 7th, Korea Electric Power Corporation's corporate bond issuance multiple (3.0 times based on this year's forecast) is estimated to remain above 2 times even after 2028, when the statutory cap reverts to 2 times. The corporate bond issuance multiple is calculated by dividing the year-end outstanding bond balance by the sum of capital and reserves at the same point in time. The KEPCO Act limits the outstanding bond balance, in principle, to within 2 times the sum of capital and reserves. However, as reserves decreased due to large-scale operating losses from 2021 to 2023, a legislative amendment in December 2022 temporarily raised the cap to 5 times until the end of 2027.

The actual corporate bond issuance multiple calculated by the Budget Policy Office using data submitted by Korea Electric Power Corporation rose from 0.8 times in 2021 to 3.4 times in 2022 and 4.5 times in 2023, before falling to 4.2 times in 2024 and 3.0 times in 2025. The forecast for the corporate bond issuance multiple under Korea Electric Power Corporation's medium- and long-term financial management plan for 2026–2030 is 3.0 times in 2026, 2.7 times in 2027, 2.3 times in 2028, and 2.1 times in 2029. While it remains below the 5th-times cap until 2027, it exceeds the cap that drops to 2 times starting in 2028. The Budget Policy Office analyzed that applying the 2nd-times limit to the forecasted outstanding bond balance of Korea Electric Power Corporation at the end of 2027 (76 trillion 489 billion won) would result in exceeding the statutory cap by 19 trillion 2,135 billion won.

Korea Electric Power Corporation's debt swelled due to the surge in international fuel prices in 2022. Korea Electric Power Corporation covered its funding shortfall with bonds, net raising 32 trillion 4,641 billion won in 2022 alone, triggering a "Korea Electric Power Corporation bond shock" as Korea Electric Power Corporation bonds flooded the market. Under Korea Electric Power Corporation's medium- and long-term financial management plan, the outstanding bond balance will reach 80 trillion 1,672 billion won in 2030, an increase of 4 trillion 9,792 billion won compared to this year's year-end forecast. The Budget Policy Office cited power grid expansion and renewable energy connection facility investments under the 11th Basic Power Supply Plan as reasons for the increase in outstanding bond balance.

According to the Budget Policy Office, Korea Electric Power Corporation's reserves are projected to reach 33 trillion 5,252 billion won in 2029, a 58.7% increase from 2025. However, the outstanding bond balance will also grow during the same period, meaning the multiple will not fall below 2 times. In other words, it is difficult to maintain the limit with profits alone.

Korea Electric Power Corporation set a goal in its medium- and long-term financial management plan to reduce the corporate bond issuance multiple to within 2 times by 2030. Along with this, it is known that the company plans to push forward government consultations, including amending the KEPCO Act, to resolve the conflict between the limit and the outstanding bond balance plan.

According to KB Securities, Korea Electric Power Corporation's outstanding bond balance reached 73 trillion 700 billion won as of the 2nd of this month (59 trillion 900 billion won in Korea Electric Power Corporation bonds, 7 trillion 200 billion won in electronic commercial paper, and 6 trillion 600 billion won in overseas bonds). However, analysis suggests that the remaining issuance volume for this year will not be large enough to cause a supply and demand shock to the market. Park Moon-hyun, a researcher at KB Securities, stated, "While short-term issuance burden is limited, institutional responses are expected to be necessary ahead of the expiration of the special corporate bond issuance limit at the end of 2027."