"Prepay 25 Trillion Won in Electricity Fees"…Samsung and SK hynix Reject KEPCO's Proposal
The Burden of Large-Scale Upfront Expenses
Choosing to Minimize Mid- to Long-Term Management Risks
Samsung Electronics and SK hynix have formally rejected Korea Electric Power Corporation's (KEPCO) proposal to prepay 25 trillion won in electricity fees for five years, shifting their focus to managing business uncertainties.
According to industry sources on the 14th, Samsung Electronics and SK hynix conducted an internal and thorough review of KEPCO's request for the prepayment of electricity fees and conveyed to KEPCO that it would be difficult to accept the proposal.
Previously, KEPCO had requested that based on the amount of electricity fees paid by the two companies last year, Samsung Electronics prepay 20 trillion won and SK hynix 5 trillion won, for a combined total of 25 trillion won. Although the semiconductor industry is currently enjoying a major boom, making such a massive upfront payment is interpreted as a burden in terms of their medium- to long-term management strategies, given the high variability in performance over the five-year period.
KEPCO had initially stated its intention to invest the prepaid electricity fees primarily in the construction of the national backbone electric grid, including the Yongin and Honam semiconductor clusters. KEPCO also offered an incentive by applying an interest rate higher than that of a two-year treasury bond to the prepayment, with electricity fees offset on a semiannual basis. From KEPCO's perspective, this strategy aimed to quickly secure a large amount of capital for advanced industrial power infrastructure investment while reducing the burden of issuing new corporate bonds. However, with both companies refusing the proposal, KEPCO is now expected to face inevitable setbacks.
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As of the end of June, KEPCO's total debt stands at 210.7 trillion won, with daily interest payments amounting to 11.5 billion won. Adding to this, a special government exemption—temporarily raising the ceiling on corporate bonds from twice the combined total of capital and reserves to as much as five times—is set to expire at the end of next year, leading to growing concerns over an urgent need to find diverse solutions for fundraising.
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