KOGAS has over $570mn in derivative losses over 3 years

January 3, 2014 Leave a comment

KOGAS has over $570mn in derivative losses over 3 years

Shin Hyun-gyu, Chung Seok-woo

2014.01.02 17:46:11

Korea Gas Corporation (KOGAS) suffered almost 600 billion won ($571.1 million) losses from financial derivative transactions in the last three years. This is triggering an accusation that the company, which purchases natural gas in dollar terms overseas and brings it to South Korea, has a loophole in its foreign exchange (FX) management. KOGAS logged 193.7 billion won in loss arising from financial derivative transactions between the first quarter (Q1) and Q3 last year, according to the Financial Supervisory Service’ electronic notice system Thursday. Taking into account 176.3 billion won loss in 2011 and 221.7 billion won loss in 2012, the company posted close to 600 billion won in loss over the three years.
The company purchases derivatives to hedge the risk of FX fluctuation. But the gas company could be exposed to the FX risk in the process of buying gas abroad in the dollar currency and selling it to domestic gas utilities and power generation companies in the won currency.
Since KOGAS’s transaction losses outweighed transaction gains, the gas company is accused of having failed to manage FX risk properly while importing raw materials.
“Public companies are required to hedge all transactions,” said an official at KOGAS. “The loss is simply part of loss stemming from periodic FX transactions. Our business structure ensures a zero sum of gains and loss over a long term.”

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