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Investing.com -- S&P Global Ratings has downgraded Ecopetrol S.A. to ’BB’ from ’BB+’ following a similar action on Colombia’s sovereign credit rating. The outlook remains negative.
The rating agency lowered Colombia’s long-term foreign currency rating to ’BB’ from ’BB+’ on Wednesday, citing delayed improvements in the country’s fiscal deficit. The local currency rating was cut to ’BB+’ from ’BBB-’.
Ecopetrol’s ratings remain capped by Colombia’s sovereign rating due to the company’s importance in generating revenue for the country, its status as a government-related entity, and its role in Colombia’s energy transition.
The Colombian government owns 88.49% of Ecopetrol, creating what S&P describes as a "strong link" between the company and the government. As Colombia’s leading oil and gas producer, Ecopetrol plays a "very important role" in the country’s economy.
S&P expects Ecopetrol to maintain consistency in both leverage and profitability while achieving its growth prospects. The agency’s base-case scenario for the next two years projects leverage to remain around 2.0-2.5x and EBITDA margins at approximately 40%.
These credit metrics take into account Ecopetrol’s focus on increasing production and reserves, operating refineries at more than 90% of installed capacity, and implementing its 2040 strategy aimed at enhancing renewable energy sources.
The negative outlook reflects the same outlook on Colombia. S&P indicates it could lower Ecopetrol’s ratings further if Colombia is downgraded in the next 12 months.
The company’s stand-alone credit profile (SACP) remains at ’bb+’ but could be revised downward if its financial performance weakens with adjusted net debt to EBITDA consistently approaching 3.0x, if production declines or replacement ratios fall below 100%, or if the company prioritizes dividends over maintenance and growth capital expenditures.
S&P could revise the outlook to stable if it takes similar action on Colombia’s foreign currency sovereign credit rating.
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