Nov. 11 (Bloomberg) -- Korea Electric Power Corp., the nation’s biggest electricity producer, canceled a plan to sell as much as $700 million in dollar bonds, according to a person with direct knowledge of the matter.

The Seoul-based utility will refinance $1.24 billion in euro- and yen-denominated bonds by selling local-currency notes, said the person, who asked not to be identified as the decision is private.

The company had planned to sell a combination of won bonds and dollar notes with maturities of at least five years to refinance the debt, a person said on Nov. 4. No-one at Korea Electric was immediately available for comment.

South Korea will restrict state-owned companies from taking out dollar funding because foreign currency borrowed from local banks is helping drive up the value of the won, an official at the Ministry of Strategy and Finance said on Oct. 8. Exporters in developing nations hoarded dollars after the September 2008 collapse of Lehman Brothers Holdings Inc. triggered a seizure in global credit markets.

Korea Electric on Nov. 3 reported third-quarter profit that fell short of analyst estimates after the cost of repaying foreign-currency bonds it sold in 2006 increased.

“Funding in local currency would cost them less than selling dollar notes, and this could give a boost to the dollar against the won in the foreign exchange market,” said Yang Jin- Mo, a credit strategist at SK Securities Co. by telephone today.

Korea Electric would have to pay 5.39 percent to sell five- year local-currency notes today, according to the Korea Financial Investment Association. That would mean Korea Electric paying 203 basis points more than Treasuries to sell dollar notes at the same cost, said Yang.

The company sold $500 million in 5.5 percent, five-year bonds on July 13 that were priced to yield 355 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

To contact the reporter on this story: Jungmin Hong in Seoul at jhong47@bloomberg.net

Last Updated: November 11, 2009 05:08 EST