Korea’s coal power companies squeezed for financing amid ESG fever

South Korea’s coal power companies are facing tighter scrutiny for debt financing as they are increasingly shunned by financial investors amid the growing adoption of environmental, social and governance (ESG) standards in investment.

Industry officials are expressing concerns that the pursuit of ESG theme, introduced as an incentive for business activities, could work as a regulatory stumbling block in corporate financing.

According to the investment banking industry on June 18, Samcheok Blue Power Co. failed to attract any institutional investor during the bookbuilding on Thursday for its 100 billion won ($88 million) in a corporate bond issue.

With no interest from any institutional investors, the planned bond issue will be taken over by the coal power company’s bond sale managers, including NH Investment & Securities Co.

The aborted corporate bond sale came after local credit rating agencies cut their outlook for the coal power company’s 3-year AA-minus-rated bonds to negative from stable, reflecting unfavorable market views on coal-related businesses.

Other non-government coal power companies such as Gangneung Eco Power Co., Goseong Green Power Co. and GS Donghae Electric Power Co. also face a downgrade in their credit outlook by local rating companies, finding it increasingly hard to refinance their projects or roll over maturing debt.

“With the strengthening of ESG investments, brokerage companies are reluctant to manage the sale of bonds issued by carbon emitters. This, in turn, is working as pressure for such companies to get debt financing,” said an industry official.

BIG INVESTORS TURN COLD SHOULDER ON COAL FIRMS

Korea’s major lenders, one after another, have declared they are ending support for coal-related companies as investors worldwide are moving away from coal projects, along with oil and natural gas exploration, instead pouring money into renewable energy such as solar and wind power.

Korea’s biggest fund managers, including Hanwha, KB Asset Management and Shinhan BNP Paribas, have indicated they will step back from funding the country’s coal industry amid growing protests by environmental activists against greenhouse gas emission-related projects.

Last month, the National Pension Service (NPS), Korea’s biggest institutional investor, said it is excluding from its portfolio some of new coal-fired power development projects at home and abroad.

The pension fund said it is introducing negative screening to exclude or curtain investments in industries or companies with low ratings on ESG standards, a move that could impair financing by companies like Korea Electric Power Corp. (KEPCO), steelmaker POSCO and petrochemical companies.

The industry-wide push for ESG movements is in line with the Moon Jae-in administration’s pledge in October that the country would achieve carbon neutrality by 2050 and spend 8 trillion won on environmentally-friendly growth initiatives.

With financial investors’ cold shoulder against coal-related businesses, state-run power companies also seem to have difficulty financing in the credit market.

The power-generating affiliates of KEPCO are being asked to pay higher yields than similarly rated state-run firms when issuing bonds, according to industry officials.

“With pension funds turning their back against coal power companies, they are unwelcomed in the local bond market,” said a bond trader.

Write to Geun-Ho Im and Eun-Jung Kim at eigen@hankyung.com
In-Soo Nam edited this article.