Moody's changes Ecopetrol's credit rating to Ba1 and its outlook from negative to stable

Rhea-AI Summary

Moody's has downgraded Ecopetrol's global credit rating from Baa3 to Ba1 while changing its outlook from negative to stable. The agency also reduced Ecopetrol's individual rating from Ba3 to B1, citing concerns about debt management, dividend distribution, and cash generation expectations for 2025. Despite the downgrade, Moody's acknowledged Ecopetrol's strong position as Colombia's leading oil and gas producer and its significant power transmission business. The company benefits from stable cash flows through subsidiaries Interconexión Eléctrica S.A. E.S.P. and Cenit SAS, and it remains supported by access to global capital markets and backing from the Colombian government. Ecopetrol is Colombia's largest company and a major energy player in the Americas, with expansive operations in oil, gas, petrochemicals, and power transmission, both domestically and internationally.

Positive

• Ecopetrol maintains a strong position as Colombia's leading oil and gas producer.
• Significant power transmission business in Colombia and other Latin American countries.
• Stable cash flow from subsidiaries Interconexión Eléctrica S.A. E.S.P. and Cenit SAS.
• Support from the Colombian government.
• Access to global capital markets.
• Strategic operations and stakes in the United States, Brazil, Mexico, Chile, Peru, and Bolivia.

Negative

• Moody's downgraded Ecopetrol's global credit rating from Baa3 to Ba1.
• Individual rating reduced from Ba3 to B1.
• Concerns about debt management.
• Dividend distribution above company policy levels.
• Lowered cash generation expectations for 2025.

Financial Analyst

Moody's downgrade of Ecopetrol's credit rating from Baa3 to Ba1 alongside the change in outlook from negative to stable carries significant implications. The downgrade places Ecopetrol into a non-investment grade or junk status category, raising borrowing costs due to perceived increased risk.

This shift entails that $ debt issuance by the company will likely come with higher interest rates. The downgrade follows concerns about debt management and dividend distributions beyond company policy, which hints at cash flow vulnerabilities and strategic financial decisions that might not align with long-term stability.

While Ecopetrol's subsidiaries like Interconexión Eléctrica S.A. E.S.P. and Cenit SAS bolster stable cash flows, the reliance on the Colombian government’s support is important but might not fully offset investor concerns.

Overall, for retail investors, this downgrade signals heightened risk and potential volatility in Ecopetrol's stock. It's important to assess their continued expected performance in cash generation and strategic adjustments in response to these ratings.

Energy Market Analyst

Ecopetrol’s downgrade reflects broader dynamics in the energy sector, especially for companies heavily reliant on fossil fuels. The rating downgrade to Ba1 by Moody's underscores the volatility in oil and gas markets, regulatory pressures and the shift towards renewable energy sources.

Despite Ecopetrol's significant market share—over 60% of Colombia's hydrocarbon production—the company’s future cash flow projections and heavy debt load are areas of concern. Additionally, their current diversification into power transmission and international ventures in the Americas, although promising, might not immediately counterbalance the risks associated with core fossil fuel operations.

Retail investors should consider the long-term sustainability and strategic direction of Ecopetrol, particularly in transitioning towards cleaner energy sources, as this will impact its financial health and market positioning.

BOGOTA, Colombia, May 23, 2024 /PRNewswire/ -- Ecopetrol S.A. (BVC: ECOPETROL; NYSE: EC) ("Ecopetrol" or the "Company") reports that credit rating agency Moody's downgraded its global credit rating from Baa3 to Ba1 and changed the outlook from negative to stable. Additionally, the agency reduced the individual rating (BCA¹) from Ba3 to B1.

The decision to modify the individual rating was based primarily on its review of debt management, dividend distribution above the Company's policy and cash generation expectations in 2025.

Moody's mentioned that the overall Ba1 rating reflects the Company's position as Colombia's principal producer of oil and gas, as well as its significant power transmission business in Colombia and in other Latin American countries, the strong and stable cash flow at its subsidiaries Interconexión Eléctrica S.A. E.S.P. and Cenit SAS. The rating agency stated that Ecopetrol will be able to meet its financial obligations through access to the global capital market and the support of the Colombian government.

The evaluation of the aforementioned factors supports an overall rating three levels above the Company's individual rating.

The report issued by the rating agency on May 22, 2024, announcing the rating change, can be consulted at the link below:

https://www.moodys.com/research/Moodys-Ratings-downgrades-Ecopetrol-to-Ba1-and-changes-outlook-to-Rating-Action--PR_490593

Ecopetrol is the largest company in Colombia and one of the main integrated energy companies in the American continent, with more than 18,000 employees. In Colombia, it is responsible for more than 60% of the hydrocarbon production of most transportation, logistics, and hydrocarbon refining systems, and it holds leading positions in the petrochemicals and gas distribution segments. With the acquisition of 51.4% of ISA's shares, the company participates in energy transmission, the management of real-time systems (XM), and the Barranquilla - Cartagena coastal highway concession. At the international level, Ecopetrol has a stake in strategic basins in the American continent, with Drilling and Exploration operations in the United States (Permian basin and the Gulf of Mexico), Brazil, and Mexico, and, through ISA and its subsidiaries, Ecopetrol holds leading positions in the power transmission business in Brazil, Chile, Peru, and Bolivia, road concessions in Chile, and the telecommunications sector. This press release contains business prospect statements, operating and financial result estimates, and statements related to Ecopetrol's growth prospects. These are all projections and, as such, they are based solely on the expectations of the managers regarding the future of the company and their continued access to capital to finance the company's business plan. The realization of said estimates in the future depends on the behavior of market conditions, regulations, competition, and the performance of the Colombian economy and the industry, among other factors, and are consequently subject to change without prior notice.

This release contains statements that may be considered forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. All forward-looking statements, whether made in this release or in future filings or press releases, or orally, address matters that involve risks and uncertainties, including in respect of the Company's prospects for growth and its ongoing access to capital to fund the Company's business plan, among others. Consequently, changes in the following factors, among others, could cause actual results to differ materially from those included in the forward-looking statements: market prices of oil & gas, our exploration, and production activities, market conditions, applicable regulations, the exchange rate, the Company's competitiveness and the performance of Colombia's economy and industry, to mention a few. We do not intend and do not assume any obligation to update these forward-looking statements.

For more information, please contact:

Head of Capital Markets
Carolina Tovar Aragón
Email: investors@ecopetrol.com.co

Head of Corporate Communications
Marcela Ulloa
Email: marcela.ulloa@ecopetrol.com.co

¹ Baseline Credit Assessment

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SOURCE Ecopetrol S.A.

FAQ

What is Ecopetrol's current global credit rating?

Moody's has downgraded Ecopetrol's global credit rating to Ba1.

What changes did Moody's make to Ecopetrol's credit outlook?

Moody's changed Ecopetrol's credit outlook from negative to stable.

Why did Moody's downgrade Ecopetrol's individual rating?

Moody's downgraded Ecopetrol's individual rating due to concerns about debt management, high dividend distribution, and cash generation expectations for 2025.

What are the strengths of Ecopetrol mentioned in the Moody's report?

Ecopetrol's strengths include its leading position in oil and gas production in Colombia, significant power transmission business, stable cash flow from subsidiaries, and support from the Colombian government.

Which subsidiaries contribute to Ecopetrol's stable cash flow?

Subsidiaries contributing to Ecopetrol's stable cash flow include Interconexión Eléctrica S.A. E.S.P. and Cenit SAS.