Moody’s cuts credit view on KEPCO to lowest investment grade

Moody’s on Friday cut its view on KEPCO’s credit to the lowest investment grade, a move that could lead the rating agency to downgrade the South Korean utility.

Moody’s lowered its baseline credit assessment (BCA) on KEPCO, short for Korea Electric Power Corp., by one notch to baa3 from baa2.

Baa3 is just above the speculative grade. BCA serves as a basic gauge to rate a company’s debt credibility.

The rating agency warned in a statement that it could further lower its BCA on KEPCO to Ba1, a non-investment grade.

Meanwhile, it maintains KEPCO’s Aa2 rating for long-term debts with a stable outlook, on par with South Korea’s sovereign credit rating.

That means Moody's Friday move will not affect its credit risk.

The move comes after KEPCO, under its largest-ever operating losses, failed to raise electricity bills enough to reflect galloping energy import prices.

In 2022, the near-monopoly operator posted more than a sixfold on-year operating shortfall surge to 32.7 trillion won ($25 billion). The 2022 results marked its record-high operating loss.

In the first quarter of this year, it reported a 6.2 trillion won operating loss.

Despite the ballooning losses, KEPCO was only allowed to hike the electricity rate by 7 won per kilowatt hour (kWh) for the current quarter due to the government’s cap on drastic utility bill hikes.

The hike falls far short of KEPCO’s call for a 51.6 won hike for this year to return to profit.

To cover funding shortfalls, KEPCO has raised 10.3 trillion won ($7.8 billion) in corporate bonds so far this year, about one-third of its last year’s total issuance of 31.8 trillion won.

Taking responsibility for the streak of losses, KEPCO this month announced its most aggressive self-rescue measures ever with a pledge to save nearly 26 trillion won over the next five years.

The government accepted the resignation of KEPCO Chief Executive Cheong Seung-il this month.

Foreign investors net sold the stock for a ninth trading day in a row.

Shares in KEPCO, 35.8% held by foreign investors, closed little changed at 18,470 on Friday, in line with the steady Kospi index.

Write to Sul-Gi Lee at surugi@hankyung.com

Yeonhee Kim edited this article.