What are your borrowing plans for the rest of the year?
We have a $1.35 billion global bond, which matures on December 1, so some portion of this should be refinanced from the overseas market and the balance through the local capital market. I don't know how much will be financed from each, but it will be subject to the local capital market situation. At the moment the local capital market is quite favourable for issuers. The coupon rate is very low and we can issue five-year bonds at around 4% to 5%. And we don't have to take forex risk. So that is why we are more focused on the local capital market.
And presumably you could issue a 10-year bond in the local market now?
We would like to issue a 10-year bond, but the market is not liquid at this part of the curve. That is partly the reason why we rely on overseas funding – it gives longer term funding. So if we tap the international capital market in the second half we will definitely tap the longer maturity, most likely 10 years.
But surely the insurance companies in Korea have lots of funds. Why do they not want to buy 10-year bonds?
There is definitely demand from life insurance companies for that maturity, but the market is not well developed. There is some supply, there is some demand, but the market is not well developed. There is no active broker to link the supply and demand. But sooner or later I am positive this will change. A longer maturity capital market will definitely exist in Korea.
You need to launch an international deal when?
I am looking for the optimal timing, but it will be between September and November.
How is your credit perceived now that you have gone through the process of spinning-off the gencos?
Since the spin-off in April 2002, we've issued several bonds and these have been accepted by investors as being quasi-sovereign. I don't see any concern on the part of investors about Kepco's rating. Kepco will focus on the transmission and distribution businesses, which are lower risk than generation anyway. So we don't see any concerns from investors. And the rating agencies have given us the same rating as the sovereign
The offshore basis swap has been very volatile this year and this will prove a factor when you time the bond. Will it continue to be very volatile for the remainder of the year?
I believe so. It will be a big factor.
The Republic has just launched a deal. Has that been good for Korean issuers?
Yes, because from our perspective we have a very strong benchmark now. Also it confirms there is a strong demand for quality Korean paper. As we are a quasi-sovereign name we see this as being very positive.
The Republic priced the deal very tightly, whereas IBK came to the market with a more generously priced deal that pleased investors with its performance. What will be Kepco's approach?
Our philosophy is that we want the tightest pricing possible but we also want to keep a balance. There is an optimum point that makes investors and issuers equally happy. In that sense, we have tried to be quite reasonable. We have sought to gain a reputation from investors as such. We are not generous, but we are also not aggressive. We simply want reasonable pricing every time we issue.