A brand new contribution to the hydrocarbon sector: Ecopetrol and its tariff reduction – information

In addition to monetary pressure, uncertainty about future exploration initiatives is causing increasing concern for the business community.

• The Baa score is characterized by an average credit score and is considered as a medium credit score, although it may have speculative components. In contrast, Ba-rated bonds have speculative characteristics and are subject to a higher credit rating.

• The company’s annual compound debt ratio increased by 25% between 2019 and 2023, while EBITDA (the company’s monetary efficiency ratio) increased by only 18%. Furthermore, the company’s overall revenues fell in 2023, while prices and bills rose.

• In addition to monetary pressures, uncertainty about future exploration initiatives is a growing concern for the business community. Ecopetrol is probably one of the most vital companies within the country and especially within the national treasury. For this reason, managing your money well is essential to continue funding applications from the main authorities.

On May 22, Moody’s Investor Service, one of the three most influential credit-worthy companies in the world, downgraded Ecopetrol, Colombia’s largest oil company, from Baa3 to Ba1, and changed its outlook from unfavorable to stable.

According to ANIF, creditworthiness fulfills a crucial function for companies because it provides an idea of ​​the relative credit score of their monetary obligations with a term of 1 12 months or longer. These estimates take into account the likelihood that the monetary obligation will not be met as promised, and the potential monetary loss in the event of default. On the other hand, Moody’s uses a scoring system starting from A a C, where A represents one of the best grades and C the worst.

Bonds with a Baa rating, like those of Ecopetrol before the downgrade, pose a risk to the average credit score and are considered average, even though they may have speculative elements. In contrast, Ba-rated bonds have speculative characteristics and are subject to a higher credit rating. Additionally, Moody’s uses numerical modifiers (1, 2, and three) to indicate its relative position within each class, with modifier 1 being the best in its range. Ecopetrol’s new Ba1 score means that the company is above the Ba class, but nevertheless it shows a higher threat compared to its previous ranking.

Why did the score drop?

Ecopetrol’s credit rating downgrade is due to a number of crucial elements related to the company’s debt and dividend payments. The purchase of ISA, in addition to various investments aimed at expanding business, greatly improved the debt burden. However, while this large financing was huge, it happened without a corresponding improvement in cash value. Ebitda of an organization (a measure of an organization’s monetary efficiency, showing revenues rather than curiosity, taxes, depreciation, and amortization).

This distinction within the debt development of Ecopetrol and Ebitda represents a viable flaw in Ecopetrol’s monetary administration. The compound annual debt development fee was 25% between 2019 and 2023 Ebitda the combination increased by only 18% during the same interval. In this way, a decline in the debt ratio highlights considerations regarding the company’s ability to meet its monetary obligations and maintain its long-term financial stability. Furthermore, the mix of declining revenues and rising prices and bills has been worsening the state of affairs lately as it reduces the company’s ability to generate revenue and meet its monetary obligations. This is evident from the expansion of curio funds, which put additional pressure on corporate prices due to ever-increasing debts.

A final thought

Faced with the downgrade, Ecopetrol responded that the value of its bonds already reflects the likelihood of the brand new score from Moody’s, as a result of the parallel evaluation of Fitch Ratings (BB+) and S&P Global Ratings (BB+) from 2021. Moreover, the company has so over. does not expect a major impact on its share value and confirms its commitment to environmentally friendly asset management, compliance with the 2024 plan and proper management of its funds and liabilities, in addition to price management.

In addition, Ecopetrol faces significant financing challenges. A greater threat will increase the price of loans, causing debtors to demand higher interest rates. Furthermore, given the state of affairs where considerations are taking place regarding recent exploration initiatives and the permissible security of acquired rights, the hydrocarbon sector has a lot to sort out. We must not forget that Ecopetrol is probably one of the most vital companies in Colombia, not only because of its function in attracting foreign traders, but in addition because of producing essential funds that help the general budget of the nation and due to this fact the applications from the main authorities.