Debt-ridden Kepco sells stake in subsidiary for $267M

Korea Electric Power Corporation (Kepco) CEO Kim Dong-cheol speaks during a ceremony for the new year held Tuesday. [KEPCO]

Korea Electric Power Corporation (Kepco) divested a portion of its stake in its subsidiary Kepco Engineering & Construction (E&C) for 350 billion won ($267.9 million), as the state-run utility continues to grapple with massive debt.

Kepco recently sold a 14.77 percent stake in Kepco E&C to a company established by Mirae Asset Securities, which brought Kepco’s stake in the engineering subsidiary from 65.77 percent to 51 percent. The second-largest shareholder of Kepco E&C is Korea Development Bank, which owns 32.9 percent.

Kepco also demanded its subsidiaries pay interim dividends and collected 3.2 trillion won. It is the first time for the company to make such a request to its subsidiaries, as year-end dividends have traditionally been paid only once a year.

The move comes as the state-run power distributor struggles to secure enough cash for corporate bond issuance.

Under the current Kepco Act, the company can issue corporate bonds up to five times the sum of its capital and reserves, which is estimated to be around 74.5 trillion won. The limit falls short of Kepco’s current outstanding balance of 80.1 trillion won, meaning that the company might have been unable to issue more bonds or even been required to redeem bonds surpassing the legal cap if not for the additional liquidity.

Kepco CEO Kim Dong-cheol on Tuesday called for a complete overhaul of the company in his New Year's message, saying that Kepco has been “putting off change and innovation on the excuse of being a state-owned company."

While promising to deliver the restructuring plans announced last year, Kim also stressed that “Kepco needs to pay some 3.3 trillion won in interest, which translates to 9 billion won per day,” calling for additional electricity rate adjustment.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]