Ecopetrol Bonds Dip After Moody’s Cuts Rating on Mounting Debt

Published 23 May 2024, 13:35:06.591 GMT

(Bloomberg) -- Ecopetrol SA’s dollar bonds fell on Thursday after Moody’s Ratings cut the company’s score to junk as the Colombia’s state-owned driller piles on debt while it boosts dividends.

Notes fell across the curve, with securities due in 2033 sliding 1.8 cents to 103.8 cents on the dollar, according to Trace data. Moody’s lowered Ecopetrol’s rating by one rung to Ba1, the highest non-investment grade level, and changed its outlook to stable from negative. With the move, all three big ratings companies place the oil producer in junk territory.

“The rating action does not come as a surprise,” Lorena Reich at Lucror Analytics wrote in a note.

Ecopetrol took on debt to finance investments such as its acquisition of Interconexion Electrica SA, but earnings have failed to keep pace with growing debt levels, Moody’s said. The downgrade reflects “a shift in the company’s financial policy,” the ratings firm said in a statement, citing shareholder payouts and a three-year capital investment plan. The strategy “could erode the company’s liquidity position.”

With Colombia set to face a natural gas shortfall as soon as next year, Ecopetrol is focusing a large part of its investment plan on finding the fuel in the nation’s Caribbean waters. Such plans “carry increased execution risk due to their location in deep-water offshore environments,” according to Moody’s.

Ecopetrol said it “ratifies its commitment to the efficient management of its resources” as well as the responsible management of its liquidity position and debt metrics.

The notes have handed investors a gain this year of 1.5%, compared to a 1.9% return for an index of emerging-market debt through Wednesday, according to data compiled by Bloomberg.

Ecopetrol has about 87.3 trillion pesos ($22.8 billion) in public bonds and loans outstanding, according to data compiled by Bloomberg. The ratio of gross debt-to-Ebitda ratio rose to 1.9 times in the first quarter, up from 1.5 times a year earlier.

By Vinicius Andrade and Andrea Jaramillo

--With assistance from Maria Elena Vizcaino.