The Director of the Tax Policy Bureau, who had raced all the way to Jeonju in one breath, snorted hard through his nose.
“Division Chief, what on earth do you think you’re doing?”
Director Oh answered with a bitter smile.
“Please, have a seat first. I’ll explain everything slowly.”
“Do you think I came all the way to Jeonju because my phone was broken? If this were something we could discuss sitting down, would I have rushed all the way here?”
“...”
“Just what kind of twisted malice is making you pull a stunt like this? Let’s hear you explain it!”
The pension fund’s sale of KEPCO bonds had sent shockwaves through the market.
All public bonds, including government bonds, had been undersubscribed, and the repercussions would soon have a massive impact on corporate bonds as well.
Unsold bonds inevitably had no choice but to raise their interest rates. If that happened, the blow to the Korean economy would be unavoidable.
“I won’t drag this out. Buy them back immediately. If this matter isn’t resolved within the week, I’ll go straight to the Blue House!”
Just as the Director of the Tax Policy Bureau turned to leave, Director Oh replied.
“I’m sorry, but that will be difficult.”
“What?”
“To be honest, your sudden visit like this is extremely troubling for us as well. The pension fund is an independent institution that does not belong to any government agency. Even if you are from the Ministry of Economy and Finance, you cannot interfere with our investment portfolio.”
“Division Chief. Do you think I came here to play word games?”
“Whether it’s word games or not, I will pretend I didn’t hear what you just said. We will manage our assets according to our own investment principles.”
“Hey!”
“I’m sorry, but if you continue like this, we’ll have no choice but to go to the Board of Audit and Inspection ourselves.”
Bang!
“You’ve all gone mad as a group. The Board of Audit and Inspection? Fine, go ahead and try it. The pension fund sold KEPCO bonds for no reason whatsoever, so let’s see whose side the Board takes!”
“I’m sorry, but we have never sold KEPCO bonds without reason.”
“What?”
“Recently, KEPCO’s bond issuance has reached eighty trillion won, and its accumulated debt stands at two hundred trillion. It has long since fallen into capital impairment. And judging by the government’s policy direction, it seems electricity rates won’t be raised this year either. With deficits only set to grow from here on, according to our calculations, it seemed better to sell.”
The Director of the Tax Policy Bureau glared. He was well aware that all of this was an excuse.
“So you’re saying KEPCO is going to collapse?”
“Well, probably not. The government will guarantee it, after all.”
“Then why did the pension fund sell the bonds as if KEPCO were going to default tomorrow? The three-trillion-won sale you carried out last week must have caused the pension fund quite a considerable loss as well, no? You took a loss for no reason. Do you think the Board of Audit and Inspection won’t hold you responsible for that?!”
Selling something worth 100 won for 90 won was clear breach of trust. On top of that, the purpose behind it was impure.
If they wanted to press charges, they could slap on abuse of authority, dereliction of duty... practically every crime that began with “official.”
But Director Oh remained perfectly composed.
“As expected, the perspective of a bureaucrat and the perspective of an investor are different.”
“What?”
“In our industry, we call this opportunity cost. Even if you take a 10 percent loss, if there is an opportunity to make a 20 percent gain, then of course you dispose of the former first and buy the latter afterward.”
“Division Chief!”
“It sounded just now as though you were accusing me of breach of trust... Strictly speaking, for us, buying KEPCO bonds in the first place is the breach of trust. Even taking into account the unstable foreign exchange market, bond safety ratings, and everything else, KEPCO bonds have no merit. The United States’ debt ratio is around 50 percent, while KEPCO’s debt ratio exceeds 500 percent. So how can KEPCO bonds be cheaper than U.S. Treasury bonds? If we truly invested based on the numbers alone, our pension fund could double its returns.”
When Director Oh finished his deliberate statement, the Director of the Tax Policy Bureau could no longer lunge at him.
In truth, making an issue of the losses from selling KEPCO bonds was even more disadvantageous to the Ministry of Economy and Finance. If the pension fund had truly made wise investments, all domestic public corporations should already have gone bankrupt.
“Division Chief... Let’s stop getting heated and talk rationally. Why are you doing this?”
The Director of the Tax Policy Bureau asked in a softened tone.
“Do you really believe the Ministry of Economy and Finance should support the domestic steel industry?”
Director Oh smiled bitterly and handed him a document.
“Director. Before that, please read this.”
“What is it?”
“It is an assessment by global investment firms of the current state of support from the Chinese authorities. At present, the Chinese authorities are maintaining the market share of their domestic steel through various support measures, including R&D investment. The current global steel market share cannot be viewed solely as competition between companies.”
“Does that change the overall tide? Whatever the case, isn’t the reality that Chinese steel’s technology continues to rise while its unit cost remains low?”
This time, Director Oh could not open his mouth.
“I’m not a fool either. If this were a problem that could be solved by helping for a short while, I would help the steel industry too. But in the long term, doesn’t our steel industry ultimately lack competitiveness?”
“...”
“Now that even the rice market has been opened, who on earth would agree to using subsidies for the steel industry? This is not a problem the state can help with.”
“Then may we dispose of our holdings as well?”
“What?”
“Our stake in Pasko, which was originally around 1 percent, was forcibly increased by the government to about eight times that amount. But if that is the judgment of the Ministry of Economy and Finance, then please allow us to clean it up as well.”
The Director of the Tax Policy Bureau glared at Director Oh.
Because the Ministry of Economy and Finance could do that, but the pension fund could not.
“What frustrates us is that double standard. You know what will happen if domestic steel collapses, so you force us to invest. But why is there no support at the government level?”
“Division Chief.”
“Give us a chance. If the government provides help at the national level, we will also increase our purchases further and protect domestic steel.”
The Director of the Tax Policy Bureau turned his back again, ignoring Director Oh’s earnest plea.
“I’m sorry, but the position of the Ministry of Economy and Finance and the position of the pension fund cannot be the same.”
“Director...”
“I won’t say more. Stop selling KEPCO bonds and buy them back. If next week’s government bond subscription is undersubscribed again, then we will hold the pension fund responsible.”
Director Oh stared bitterly at him as he fled, leaving only a chill behind.
With this, it was certain.
The government intended to keep putting out the steel industry’s fire with the pension fund’s money. Judging by the Director of the Tax Policy Bureau’s reaction, it seemed there was no government-level response strategy.
After a long silence, Director Oh picked up the phone.
“Team Leader Lee, thanks to you, I’m having a truly rare experience. It’s my first time fighting and shouting with someone called the Director of the Tax Policy Bureau. Anyway, enough of that. The talks didn’t go well. Sell more KEPCO bonds. We’ll need government bond yields to hit 10 percent before they start listening.”
After hanging up, Director Oh sank into thought for a moment, then picked up the phone again.
“Yeah, it’s me. Selling bonds won’t be nearly enough. Just sell stocks too.”
*
In our next story.
With the ruling and opposition parties having agreed on the second supplementary budget, personal government bonds were undersubscribed again today, drawing a flood of concerns from global ratings agencies. Following last week’s undersubscription, the government attempted to raise the Treasury bond rate this time, but the offering was undersubscribed once more.
The recent streak of undersubscriptions is understood to be the result of the pension fund’s selling of KEPCO bonds.
Park Giyong, chief analyst at Mirae Securities, stated, “The pension fund’s selling pressure is unusual,” and assessed, “If KEPCO bonds of a similar rating continue to flood the market, yields on government bonds will have no choice but to rise as well.”
At present, Treasury bond yields are about 1 percentage point lower than KEPCO bonds, and the interpretation is that they would have to rise even higher than that to meet demand. However, if Treasury bond rates rise, the government’s interest burden will increase, prompting concern from many experts.
The reason a single KEPCO bond can sway the domestic bond market like this lies in its enormous issuance volume.
At present, KEPCO bond issuance stands in the eighty-trillion-won range, meaning it has issued more bonds than the combined total of ten top KOSPI companies.
Yet, as if to render even such overwhelming issuance volume meaningless, KEPCO’s accumulated debt is around two hundred trillion won, and capital impairment has already begun.
Regarding this, Chief Analyst Park of Mirae Securities said, “Considering the government’s policy stance announcing a freeze on electricity rates, it will not be easy to resolve the deficit going forward,” and assessed, “As long as the pension fund’s selling continues, domestic bond risk will intensify further.”
However, the pension fund’s wave of selling does not appear likely to end easily.
That is because, following last week’s bond selloff, the pension fund has recently begun selling stocks as well.
Analyzing today’s closing market conditions, the pension fund’s selling pressure on public corporations stood out even more sharply. With the sudden wave of selling in public corporations, even concerns of “default” are emerging among many investors.
However, some point out that default fears are excessive, given that the KOSPI, which had been sluggish for the past three years, recently reached 3,500.
For more details, we connect to reporter Lee Jiseon on the scene.
Reporter Lee Jiseon?
*
-Division Chief, please give us a statement! Why are you suddenly selling?
-Were there any warning signs that government and public bonds are risky? Is that why you are selling bonds and stocks?
When the KOSPI index, which had reached 3,500, slumped to 3,300 in just one week, every financial reporter in Yeouido grabbed a camera and rushed to Jeonju.
Thanks to that, Director Oh had to push his way through the crowd as if he were standing on a prosecution photo line.
-Please, just one word!
-Is this really a sale with no reason behind it?
Director Oh flashed an easy, affable smile.
“That is speculation. The KOSPI market has shaken off three years of sluggishness and recently reached 3,500 points. That is far too generous a figure to view as a sign of an economic crisis.”
-Then why is the pension fund selling?
“We are selling because it went up. Recently, returns within the pension fund have been in the 30 percent range, and internally, the need for hedging has come to the fore. Accordingly, we are diversifying our assets.”
-But why are you selling KEPCO bonds and public corporation stocks in such large quantities?
“We bought a lot, so we have no choice but to sell a lot. There is no meaning beyond that.”
As he skillfully dodged questions like an old fox, one reporter threw out a sharp question.
-Division Chief, some interpret this as a protest against the government! Is there truly no political message in the selling of public corporations?
“No, there is not. The pension fund is an institution independent from the government, and we work with a sense of mission to take responsibility for the people’s retirement. The government does not issue orders to the pension fund, and likewise, it is unthinkable for us to convey messages to the political world.”
-Then what do you think about the recent undersubscription of Treasury bonds? Most experts assess that the sale of KEPCO bonds is the biggest reason.
“If you look at recent global market conditions, there are many investment destinations where asset values have no choice but to rise. Investment, by nature, cannot ignore opportunity cost, and in that regard, we are currently exploring responses with the risk team.”
-Division Chief!
“Yes, that will be all. We simply invest according to economic logic.”
The State Council meeting room at the Blue House.
When Director Oh’s interview ended, the ministers gathered in one place all turned pale.
President Kim Sangcheol took off his glasses and wiped them with his sleeve.
“What happened while I was away at the UN for a bit?”
-...
“Someone explain. What the hell is this nonsense?”