Fitch cuts Kepco outlook

Fitch Ratings lowered its outlook on Korea Electric Power Corp. to stable from positive and confirmed its senior unsecured foreign-currency rating at A-.

Fitch said the outlook change reflects continued delays in Kepco's plans to divest its generating subsidiaries and the increased uncertainties over the timing, size and pricing of the sale following the impeachment of Korea's president, Roh Moo-Hyun.

Fitch notes that Kepco has yet to sell any part of its generating subsidiaries in nearly three years following the unbundling of its generating operations into six gencos. Fitch says that the initial plan to divest a majority of Korea South-East Power Co. during early 2003 was delayed to this year.

Fitch points out that the delay was announced after unsuccessful discussions with bidders for a large strategic stake in Kosepco. The agency notes that following this first attempt, Kepco modified its approach in selling Kosepco from the sale of a large strategic stake (to a single buyer or consortium) in the range of 40% to 51% to an IPO in the range of 10% to 15% in conjunction with a strategic sale (where the IPO and the strategic sale would total some 30% of Kosepco).

Fitch observes that the change in approach to a market sale (i.e. an IPO) has made the timing, size and pricing of the potential sale contingent on conditions in the Korean stock market, which is unpredictable by nature and is outside the control of Kepco management.

Fitch says that the recent impeachment of president Roh has pushed the country into political disarray, and that the resulting uncertainties will likely give pause to investors on either a strategic sale or a market sale. Fitch also notes that given the current political climate, power sector reforms will likely fall even further down the government's priority list.

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