The South Korean government decided on Thursday to pursue initial public offerings (IPOs) next year for two local suppliers Korea South-East Power Co. and Korea East-West Power Co. wholly owned by state-run utility firm Korea Electric Power Corp. (KEPCO).

Earlier, the government announced it plans to gradually complete IPOs for eight public energy firms by 2020 to help improve their financial health and strengthen transparency in management.

The two will be listed in the first and second half, but which would go first is yet to be decided, the Ministry of Strategy and Finance said.

Next in the pipelines are Korea Southern Power Co., Korea Western Power Co., Korea Midland Power Co., Korea Hydro & Nuclear Power Co., KEPCO KDN Co. and Korea Gas Technology Corp.

To avoid the backlash over privatization of key public services, Korea South-East Power and Korea East-West Power will limit the number of their publicly traded shares to 30 percent. Half of those shares will be newly issued by the two subsidiaries and the rest in existing shares held by KEPCO, a structure to allow the three companies to benefit from the IPOs.

Given the asset of Korea South-East Power and Korea East-West Power, each is expected to command 2 trillion won ($1.71 billion) in market capitalization when they join the main bourse. The net value of the two amounts to 4.83 trillion won and 4.36 trillion won, respectively as of end-September, while shares of their parent KEPCO are traded now at price book ratio of 0.4 times.

The market is for now watching whether the IPOs will help KEPCO’s stock price that has been falling steeply over the past two months. Major hurdles to its stock price are the government’s plan to reform the current progressive electricity charge applied only to residential use and the mounting cost of imported coals that hurt profitability.

Analysts say the IPO proceeds would be used to improve balance sheets of the utility suppliers and they would be able to afford to invest in renewable energy business and increase dividend payments, which will be helpful to the parent company in the long run But the government’s intention to reduce its reliance on fossil fuel energy may adversely impact their earnings, according to Kim Sang-ku, an analyst at Kiwoom Securities Co.

At 1:11 p.m. Friday, shares of KEPCO were up 3.95 percent at 46,050 won.

By Hong Jang-won and Song Gwang-sup

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