20-F: KEPCO Navigates Complex Ownership Structure, Plans Asset Sales in 2024

Korea Electric Power Corporation (KEPCO) outlines its ownership structure, joint ventures, and strategic plans, including potential asset sales, in its latest 20-F filing.

Summary

• KEPCO's 20-F filing details the company's ownership structure, classifying entities as joint ventures based on shareholder agreements.
• The company is planning to sell its investments in SPC Power Corporation, KEPCO SPC Power Corporation, and KV Holdings, Inc., but the timing and proceeds remain unspecified as of December 31, 2023.
• Long-term loans to Bigeum Resident Photovoltaic Power Co., Ltd. were converted into equity during the year ended December 31, 2024.
• YTN Co., Ltd. is no longer a related party as of December 31, 2024, due to the completion of share sales during the year.
• Samcheok Eco Materials Co., Ltd. was reclassified from an associate to a joint venture for the year ended December 31, 2024.
• Taebaek Wind Power Co., Ltd. was changed from an associate to a joint venture for the year ended December 31, 2023.
• Applicable tax rates were 26.5%, 25.64%, and 25.93% as of December 31, 2022, 2023, and 2024, respectively.
• Net gains (losses) on valuation of derivatives applying cash flow hedge accounting were (24,415) million, (3,654) million, and 11,870 million, net of tax, for the years ended December 31, 2022, 2023 and 2024, respectively.
• The company recognized 38,997 million and 46,444 million as of December 31, 2023 and 2024, respectively, as a third-party reimbursement asset in relation to the provisions on the transmission regional support programs.
• Shin-Hanul Unit #2 is in commercial operation as of December 31, 2024.
• From December 7, 2024, the date when the call option become exercisable for the first time, the interest rate has increased from 4.44% to 5.10% due to the application of the step-up provision on hybrid bonds.
• The company sold all of its shares in YTN Co., Ltd. for the year ended December 31, 2024.
• The board of directors of KEPCO Engineering & Construction Company, Inc. made a resolution to sell its old office building in Yongin-si, Gyeonggi-do, and reclassified the buildings, structures, and land as assets held-for-sale.
• The board of directors of Korea Electric Power Corporation made a resolution to sell the Uijeongbu substation, and reclassified the buildings and land as assets held-for-sale during the year ended December 31, 2022.
• The company guarantees a certain return on investments in Commerce and Industry Energy Co., Ltd. for the financial investors holding such investments.
• The common stocks of Dongducheon Dream Power Co., Ltd. held by the Company were pledged as collateral.
• The company recorded the fair value of derivatives regarding the power supply agreement (PPA) of its subsidiary Columboola Solar Farm Hold Co Pty., Ltd. as other derivatives.
• The company recorded the fair value of derivatives in accordance with the shareholders agreement of its associate, Hyundai Green Power Co., Ltd., as other derivatives.
• In relation to the agreement to purchase hybrid bonds issued by Samcheok Eco Materials Co., Ltd., an associate of the Company, the performance obligation as of December 31, 2024 which amounts to 26,422 million to the underwriter of the bonds was recorded as other derivative liabilities.
• The company provided a payment guarantee to Chile Kelar project for opening L/C for Debt Service Reserve Account (DSRA), and others.
• The company provided a payment guarantee to Jordan Tafila wind power project for opening L/C for Debt Service Reserve Account (DSRA).
• The company has entered into an agreement prescribing the settlement of the estimated loss in case damages occur related to the fulfillment of the mandatory supply volume according to the mandatory supply agreement for coal ash.
• The company has issued a guaranteed letter of credit in the amount of USD 8,000 thousand under the interlender loan agreement with Santiago Solar Power SpA.
• The company guarantees to provide supplemental funding for business with respect to excessive business expenses or insufficient repayment of borrowings.
• Pursuant to the guarantee agreement, the Company recognized other provisions of 11,804 million as the possibility of economic benefit outflow to fulfill the obligation was deemed probable and the amount could be reasonably estimated.
• The effective percentage of ownership is less than 50%. However, this subsidiary is included in the consolidated financial statements as the Company obtained the majority of the voting power under the shareholders agreement.

Sentiment

Score: 6

Explanation: The document presents a factual overview of KEPCO's operations and financial status, with a neutral tone. The sentiment is slightly positive due to the mention of increased sales and profit, but tempered by ongoing challenges and uncertainties.

Positives

• Shin-Hanul Unit #2 is now in commercial operation.

Negatives

• KEPCO plans to sell its investments in SPC Power Corporation, KEPCO SPC Power Corporation, and KV Holdings, Inc., suggesting potential financial restructuring.
• The company has commitments to guarantee payments related to the gas combined cycle power project of South Jamaica Power Company Limited, a joint venture of the Company.
• The company has issued a guaranteed letter of credit in the amount of USD 8,000 thousand under the interlender loan agreement with Santiago Solar Power SpA.

Risks

• The timing and proceeds from the planned sales of SPC Power Corporation, KEPCO SPC Power Corporation, and KV Holdings, Inc. are not specified.
• The company has commitments to guarantee payments related to the gas combined cycle power project of South Jamaica Power Company Limited, a joint venture of the Company.
• The company has issued a guaranteed letter of credit in the amount of USD 8,000 thousand under the interlender loan agreement with Santiago Solar Power SpA.

Future Outlook

The Company is planning to sell its investment in SPC Power Corporation, KEPCO SPC Power Corporation, and KV Holdings, Inc. The timing of and proceeds from such sales transaction is not specified as of December 31, 2023.

Industry Context

The announcement reflects KEPCO's strategic adjustments in response to evolving energy policies and market dynamics, particularly in the context of renewable energy and international operations.

Comparison to Industry Standards

• The document does not contain enough information to make a detailed comparison to industry standards.
• A more detailed analysis would require specific financial metrics and operational data from comparable companies in the electric power industry.

Legal Proceedings

• Xe-Pian Xe-Namnoy Power Co., Ltd., an associate of the Company, has entered a contract to pay an incentive type of impounding bonus to SK Eco Plant Co., Ltd. when the Xe-Pian Xe-Namnoy Dam is completed.
• If Xe-Pian Xe-Namnoy Power Co., Ltd. fails to pay SK Eco Plant Co., Ltd., the Company guarantees the payment, and the amount is USD 5,000 thousand.
• The Company has entered into an agreement prescribing the settlement of the estimated loss in case damages occur related to the fulfillment of the mandatory supply volume according to the mandatory supply agreement for coal ash.

Related Party Transactions

• The Company used initial cost as their fair value because there was not enough information to determine fair value, and the range of the estimated fair value is wide.

Stakeholder Impact

• The KEPCO Act requires KEPCO to appropriate a legal reserve equal to at least 20 percent of net income for each accounting period until the reserve equals 50 percent of KEPCOs common stock.
• The legal reserve is not available for cash dividends; however, this reserve may be credited to paid-in capital or offset against accumulated deficit by the resolution of the shareholders.

Next Steps

• The Company is planning to sell its investment in SPC Power Corporation, KEPCO SPC Power Corporation, and KV Holdings, Inc.
• The Company plans to establish the Eleventh Long-Term Transmission and Substation Facilities Plan in 2025 in accordance with the Eleventh Basic Plan.

Key Dates

Keywords

Joint ventures, subsidiaries, ownership, power, KEPCO, energy