The Korea Gas Corporation and Korea District Heating Corporation are facing controversy as they resume dividends for the first time since 2022. While both companies have reported increased net profits, their receivables have also risen, leading to concerns that "the government may have pressured them to distribute dividends to cover tax revenue shortfalls."
In response, the government refuted, stating, "The increase in receivables is not significant, and dividends are necessary for enhancing shareholder value." Amid the announcement of dividends by the financially struggling Korea Gas Corporation and Korea District Heating Corporation, attention is also drawn to the dividend status of the Korea Electric Power Corporation, which is facing difficulties due to liabilities.
According to relevant authorities on the 27th, the Ministry of Strategy and Finance held a "dividend consultative body" on the 26th, a day after which the gas and district heating corporations announced their dividends. Both companies decided on dividends for the first time since 2022 (based on 2021 performance). The Korea Gas Corporation decided to distribute 1,455 won per share, with a total dividend amount of 126.98675 billion won and a dividend rate of 4.1%. The Korea District Heating Corporation announced a dividend of 3,879 won per share, totaling 44.9 billion won, with a dividend rate of 8.45%.
◇ The Korea Gas Corporation's accumulated receivables increased by 1 trillion won … Government: "We considered the liability ratio"
The issue is that the "hidden deficits" in both companies are increasing due to rising receivables. The receivables system is a unique system utilized by the gas and district heating corporations. The Korea Gas Corporation introduced the receivables system in 1998 while implementing the fuel cost linkage system, and the Korea District Heating Corporation adopted it in the fourth quarter of 2023. Receivables represent the amount recorded for future "outstanding payments" when the gas or district heating corporation supplies fuel at prices below the cost. This has created additional deficits equivalent to the scale of receivables, yet both companies list this as "assets" in their accounting records.
The accumulated receivables of the Korea Gas Corporation rose from 130.11 trillion won in 2023 to 140.76 trillion won last year. Last year's liabilities reached 47 trillion won, effectively resulting in capital erosion. The Korea District Heating Corporation's accumulated receivables also increased to 55.95 billion won from the previous year's 41.79 billion won. However, the consolidated operating profit of the Korea Gas Corporation last year turned into a surplus of 300.34 billion won, a 93% increase over the previous year, with a net profit of 1.149 trillion won. The consolidated operating profit of the Korea District Heating Corporation also grew from 314.7 billion won to 327.9 billion won.
As a result, analyses are emerging that the government decided on dividends despite the financial structures of the Korea Gas Corporation and Korea District Heating Corporation not improving. Earlier in 2023, the Korea Gas Corporation decided against dividends based on the 2022 performance, stating, "If the receivables issue eases and the financial structure improves, we will continue our past dividend policy." The accumulated receivables in 2022 were 85.856 billion won, much lower than the estimated 140.76 trillion won at the end of 2024. Operating profit was 24.634 billion won, and net profit was 14.970 billion won. This has led some to suspect that the decision to issue dividends this year is due to the government’s "tax revenue shortfalls."
The Ministry of Strategy and Finance requires the submission of basic data on dividends from government-invested institutions every January, after which it assesses the possible profits and discusses dividend proposals within the consultative body. The dividend consultative body consists solely of personnel from the Ministry of Strategy and Finance, including the vice minister, financial management officer, budget officer, and deputy minister. In practice, public enterprises have no choice but to comply with the ministry’s decisions. An official from a public enterprise noted, "While corporations can propose opinions, ultimately, dividends are determined by the government’s decisions, making it difficult to ascertain the reasons for dividend decisions internally."
A Ministry of Strategy and Finance official stated, "The dividends of the Korea Gas Corporation and Korea District Heating Corporation were determined by considering the liability ratio, receivables, and enhancement of shareholder value," adding, "We determined that dividends were feasible since the increase in receivables was not significant." The government has recently been encouraging dividends from energy public enterprises to resolve the 'Korea Discount.' Last year, the government added criteria for the management evaluations of public institutions, including the appropriateness of dividend levels, protection of minority shareholders, and compliance with environmental, social, and governance (ESG) best practices. The intention is for public institutions to focus more on increasing profits, and by issuing dividends, help resolve the 'Korea Discount.'
The Ministry of Strategy and Finance has distanced itself from interpretations that the dividends from the Korea Gas Corporation and Korea District Heating Corporation are aimed at covering tax revenue shortfalls. The ministry stated, "Even when the excess tax revenue rose to 52.6 trillion won in 2022, dividend income exceeded 20 trillion won," clarifying, "It was not about tax revenue, but rather considering strong performance." Last year, the total revenue was 535.9 trillion won, which was 14.1 trillion won lower than the budget.
◇ Will Korea Electric Power Corporation engage in dividends following good performance? Experts say 'dividend policy should be consistent'
With the dividends from the Korea Gas Corporation and Korea District Heating Corporation, eyes are also on the Korea Electric Power Corporation's performance and dividend status. Korea Electric Power Corporation will disclose its performance on the 28th and decide on dividends during its board meeting at 2 p.m.
Securities industry experts predict that Korea Electric Power Corporation likely achieved good results. According to FnGuide, Korea Electric Power Corporation is expected to report an operating profit of 8.7925 trillion won and a net profit of 3.9854 trillion won this year. Korea Electric Power Corporation recorded operating deficits over the past three years (2021-2023).
In the securities industry, opinions on whether Korea Electric Power Corporation will issue dividends are divided. Lee Min-jae, a researcher at NH Investment & Securities, stated, "Given that extending the bond issuance limit for Korea Electric Power Corporation is unavoidable and that dividends would make it difficult to raise additional electricity rates, it is unlikely to expect dividends." Conversely, Choi Kyu-heon, a researcher at Shinhan Investment & Securities, remarked, "Since the Korea Gas Corporation and Korea District Heating Corporation issued dividends despite accumulating receivables, Korea Electric Power Corporation may also issue dividends if it turns its separate profits to surplus," but added, "Even if dividends are declared, they may not be at a meaningful level due to poor financial conditions." An analyst, speaking on condition of anonymity, noted, "Looking at the cases of the Korea Gas Corporation and Korea District Heating Corporation, the possibility of Korea Electric Power Corporation issuing dividends is high," but emphasized, "However, as a net loss was recorded under separate standards until the third quarter, the dividend decision will depend on how much it has recouped in the fourth quarter."
Some experts are raising concerns about the inconsistent dividend policies of energy public enterprises. Jung Do-jin, a professor at Chung-Ang University, pointed out, "The biggest problem is that the dividend status of public enterprises changes frequently based on government policy," stressing, "If there is no consistency in management decision-making, shareholders are unlikely to view dividends positively."