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18 Jan 2016
New York, January 18, 2016 -- Moody's Investors Service ("Moody's") downgraded Ecopetrol S.A.
(Ecopetrol)'s senior unsecured ratings to Baa3 from Baa2.
At the same time, the company's BCA (Baseline Credit Assessment)
was lowered to ba3 from baa3. The ratings are on review for further
Ecopetrol's ratings downgrade was triggered by persisting stressed oil
prices, which will continue to negatively affect the company's
cash flow generation and credit metrics, increasing its credit risk.
While Ecopetrol has no material debt coming due in the next two years,
weaker cash generation and higher leverage, coupled with limited
funding availability overall for the oil industry, will hurt the
company's ability to continue with its capital spending program
to sustain reserves and production.
Moody's joint-default analysis continues to assume a high probability
of support from the government of Colombia (Baa2 stable). In addition,
the agency's assumption for default dependence between Ecopetrol and the
government continues to be moderate. This assessment now results
in a three-notch uplift of Ecopetrol's senior unsecured rating
to Baa3 from its ba3 BCA.
Moody's review of Ecopetrol's Baa3 senior unsecured ratings
and ba3 BCA will focus on the degree of the impact that depressed oil
prices will have on the company's cash generation. The analysis
will also consider opportunities that the company may have to reduce costs
further, as well as on its flexibility to adjust capex down or sell
assets in order to protect liquidity. In addition, Moody's
will assess the government of Colombia's ability to support the
company on a timely manner.
..Issuer: Ecopetrol S.A.
.... Issuer Rating (Local Currency),
Downgraded to Baa3 from Baa2; Placed Under Review for further Downgrade
....Multiple Seniority Shelf (Foreign Currency),
Downgraded to (P)Baa3 from (P)Baa2; Placed Under Review for further
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Downgraded to Baa3 from Baa2; Placed Under
Review for further Downgrade
..Issuer: Ecopetrol S.A.
....Outlook, Changed To Rating Under
Review From Stable
Despite Ecopetrol's strong efforts to improve operating efficiencies
and reduce capex to protect its liquidity position, the company's
credit metrics will deteriorate further as a consequence of persistent
low oil prices. "Moody's estimates that Ecopetrol's
leverage will exceed 5 times by the end of 2017, from 3.3
times in September 2015, with low prospects of recovery in the medium
term", said Nymia Almeida, a Vice president -
Sr. Credit Officer at Moody's.
The company's Baa3 ratings and ba3 BCA continue to reflect Ecopetrol's
status as Colombia's leading oil and gas producer, accounting for
about two-thirds of the country's production and 100% of
the supply of oil products. The ratings also take into consideration
that Ecopetrol counts with stable cash flows from its midstream subsidiary,
which includes Ocensa (Baa3 positive).
Late 2015, Ecopetrol announced a cut on its 2016 capex program to
USD4.8 billion, which compares to the USD6.7 billion
previously planned for the year, and to the USD7.4 billion
spent in 2014. Ecopetrol's capex is focused on exploration
and production in over 60% of total. Lower annual capex
starting in 2016 will be driven mostly by reduced investments in downstream,
which will decline materially during the year as the upgrade of refinery
Reficar approaches completion, expected by the company for the first
half of 2016.
Moody's expects that, during this period of lower operating
cash flows, the government take as a percentage of the company's
net income will remain below the usual 80%; the rating agency
notes that the dividend payout ratio in 2014 (paid in 2015) was 70%.
Ecopetrol has a weak liquidity position that includes USD3 billion of
cash and cash equivalents as of September 30, 2015 to cover the
company's short term maturities of about USD1 billion for 2016 and
2017 plus interest, capex and dividends. For the next twelve
to eighteen months, Moody's expects a weakened EBITDA in the
USD1.5 billion neighborhood, along with USD4.8 billion
in annual capex, and around USD3 billion in interest, dividends
and taxes. Further depreciation of the Colombian peso would affect
the company's financial flexibility, despite it generating
around half of revenues and EBITDA in US dollars, because about
85% of its debt is denominated in hard currencies. While
Ecopetrol could sell certain non-core and core operating assets,
this would be a challenge under current oil market conditions.
The principal methodology used in these ratings was Global Integrated
Oil & Gas Industry published in April 2014. Other methodologies
used include the Government-Related Issuers: Methodology
Update published in October 2014. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
Headquartered in Colombia, Ecopetrol S.A. (Ecopetrol)
is the largest integrated oil and gas company in Colombia. It is
responsible for over 60% of total Colombian oil production and
has a proved hydrocarbon reserve position of roughly two billion barrels
of oil equivalent at the end of 2014. For the twelve months September
30, 2015, the company generated revenues of USD22.5
billion and it had total assets of USD59 billion through three business
segments, exploration and production (E&P, 51%
of revenues and 56% of EBITDA for the last twelve months ended
September 31, 2015), refining activities (34% of revenues
and 5% of EBITDA), and transportation and logistics (15%
of revenues and 39% of EBITDA). Its production averaged
740.9 mboed in the third quarter of 2015, 2% below
that of the year before.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Nymia C. Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's downgrades Ecopetrol to Baa3; places ratings on review for further downgrade
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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