Samsung, SK hynix turn down Kepco's electricity prepayment proposal over cash flow concerns
The chipmakers declined Kepco’s proposed 25 trillion won ($18.6 billion) prepayment plan, citing cash-flow risks and investment needs.
From left, the flag of Samsung Electronics at the company office in Seocho District, southern Seoul and the logo of SK hynix is seen outside the company's headquarters in Icheon, Gyeonggi.
YONHAP
Samsung Electronics and SK hynix have rejected a plan that would have had them advance a combined 25 trillion won ($18.6 billion) to help fund the country's strained electricity grid, in a setback for the state utility's push to expand infrastructure for growing chip plants.
The chipmakers recently held an internal review of the proposal from Korea Electric Power (Kepco) to pay roughly five times their electricity bills from last year and told the utility that it would be difficult to accept, according to industry sources on Monday. Kepco confirmed that both companies had rejected the proposal.
Both companies reportedly agreed with the goal of accelerating power infrastructure but were wary of committing such a large sum of money upfront. While the memory chip boom has improved their earnings and cash generation, they concluded it would be difficult to lock up funds on the assumption that the current upturn will last five years. They also cited the need to secure funds for medium- to long-term investments such as factory expansions and research and development.
The exchange rate is another variable shaping earnings. Citigroup recently cut its third quarter operating profit forecast for Samsung Electronics by about 10 percent, from 115.5 trillion won to 104.1 trillion won, citing the burden of a strengthening won. It also lowered its forecast for SK hynix by about 3 percent, from 76.7 trillion won to 74 trillion won. Exporters that sell their products in dollars see the won value of their overseas sales shrink when the won strengthens.
Kepco had proposed that Samsung Electronics prepay about 20 trillion won and SK hynix about 5 trillion won. It planned to use the funds to prioritize expansion of the national power grid, accelerating construction of transmission and substation networks in areas expected to see heavy electricity demand, such as the Yongin semiconductor cluster currently under construction.
It had also proposed paying interest above the yield on two-year government bonds on the prepaid amount, with the principal and interest to be deducted from the companies' electricity bills every six months going forward. In effect, the structure would have the chipmakers lend Kepco money and recoup it later through their power bills.
Kepco's total debt stood at 210.7 trillion won as of the end of June, with interest expenses alone amounting to about 11.5 billion won per day. A special provision that raised the company's bond issuance limit from twice to up to five times the combined value of its capital and reserves is also set to expire at the end of next year.
BY PARK YOUNG-WOO [[email protected]]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
