Published On: Mon, Nov 7th, 2016

Moody’s: KEPCO’s results for the nine-months support credit quality

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Moody’s Investors Service says that Korea Electric Power Corporation’s solid operating results for the first nine months of 2016 are within Moody’s expectations and support the company’s Aa2 issuer rating and the stable outlook.

“KEPCO’s strong operating performance has led to a continued reduction of the company’s debt levels,” says Mic Kang, a Moody’s Vice President and Senior Analyst.

“Therefore, the integrated power utility will likely maintain an adequate financial buffer against more challenging operating conditions,” adds Kang. “In particular, the company will face higher fuel costs, the Korean government’s review of progressive residential rates, and increasing environmental costs.”

KEPCO recorded unaudited consolidated operating profits of KRW10.7 trillion in the nine months between January and September 2016, up 23.8% from KRW8.7 trillion in the same period the year before, while profits increased only 1.9% year-on-year to KRW4.4 trillion in 3Q 2016.

The improvement in KEPCO’s operating profits for the first nine months was driven by a 14.2% year-on-year fall in generation fuel costs, and a 10.9% fall in the costs of purchasing electricity from independent power producers, as well as little tariff cuts since June 2015.

The strong operating performance and cash flow have allowed KEPCO to reduce its reported debt to around KRW52 trillion at 30 September 2016 from KRW56 trillion at 30 June 2016, and KRW59 trillion at end-2015.

Moody’s expects that KEPCO’s continued debt reduction, as well as increasing generation from new baseload power plants, will result in a funds from operation (FFO)/debt and FFO/interest of 29%-32% and around 8x-9x respectively, over the next 12-18 months, slightly up from the 28.4% and 7.5x recorded in 2015.

With around nine gigawatts of baseload power plants scheduled for commissioning by 2017, the growth in KEPCO’s baseload capacities will far outstrip Moody’s forecast of low-single digit annual demand growth for electricity over the same period, and will help the company avoid a heavy reliance on expensive liquefied natural gas (LNG) or oil-fired generators.

 

 

 

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