Fitch Revises Outlooks on Colombian Corporates to Negative After Sovereign Outlook Change

Fitch Ratings has revised the outlooks on Colombian Corporates’ Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDR) to negative. The action followed the recent revision of Colombia’s sovereign outlook to negative.

Fitch affirmed Ecopetrol S.A.‘s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB+’ and revised the outlook to negative from stable, reflecting the change in the rating outlook of the Republic of Colombia’s IDR (BB+/Negative).

The strong linkage to the sovereign reflects Colombia’s credit profile. The ratings also reflect the Colombian government’s significant incentive to support Ecopetrol in the event of financial distress. This support stems from Ecopetrol’s strategic importance as a key liquid fuel supplier in Colombia and owner of 100% of the country’s refining capacity.

Fitch affirmed Interconexion Electrica S.A. E.S.P.’s (ISA) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB’ and revised the outlook to negative from stable, in line with Ecopetrol. ISA’s credit profile matches its ‘BBB’ rating and is not limited by the credit profile of its controlling owner, Ecopetrol. According to Fitch’s “Parent and Subsidiary Linkage Rating Criteria,” because Ecopetrol owns more than 51% of ISA, linkage should be considered in the assessment. The presence of regulatory ring-fencing mechanisms, material minority shareholders, and a track record of strong governance practices prevents Ecopetrol’s capacity to extract value from its stronger subsidiary.

Fitch views ISA’s funding and cash management policies as highly autonomous from Ecopetrol, expects ISA to maintain its independence, positively reflected in the ratings. Consequently, ISA’s ratings result from a ‘consolidate plus two’ approach to an IDR of ‘BBB’. Any changes in ISA’s corporate governance, business, or financial strategy may exert downward pressure on the company, particularly in the event of a structural increase in its dividend payout ratio.

Fitch affirmed Oleoducto Central S.A. (OCENSA)‘s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB+’ and revised the outlook to negative from stable, in line with Ecopetrol. OCENSA’s ratings reflect its linkage with Ecopetrol’s credit profile, the largest crude oil producer in Colombia and OCENSA’s main off-taker. OCENSA’s operations are integral to Ecopetrol’s core business due to operational synergies. Ecopetrol relies heavily on OCENSA’s infrastructure to transport crude oil from production fields to refineries and export terminals. Fitch considers OCENSA strategically important for Ecopetrol because it transported 82% of Ecopetrol’s crude oil production in 2Q24.

Fitch affirmed A.I. Candelaria (Spain), S.A.’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB’ and revised the outlook to negative from stable, in line with OCENSA. A.I. Candelaria’s outstanding notes will remain structurally subordinated to OCENSA’s outstanding $400 million USD notes. As the holding company, A.I. Candelaria depends on dividends from OCENSA to service its obligations. Therefore, a substantial leverage increase at OCENSA could increase the structural subordination of A.I. Candelaria’s creditors.

This risk is mitigated by OCENSA’s record of stable dividend distributions and A.I. Candelaria’s right to veto changes to OCENSA’s dividend policy and capex plans above $100 million USD. Fitch believes the projected dividend stream will be more than sufficient to cover interest expense and principal payments on A.I. Candelaria’s outstanding notes.

Fitch affirmed Grupo Energia Bogotá S.A. E.S.P. (GEB)‘s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB’ and revised the outlook to negative from stable, reflecting the change to the rating outlook of the IDR of Bogotá (BB+/Negative). Fitch assesses GEB’s Standalone Credit Profile (SCP) at ‘bbb’. GEB operates independently and autonomously, positively affecting its ratings.

Fitch believes regulatory ring-fencing mechanisms, material minority shareholders, and strong governance practices reduce the parent’s capacity to extract value from its stronger subsidiary. Under Fitch’s “Parent-Subsidiary Rating Criteria,” these factors lead Fitch to rate GEB two notches above Bogotá’s consolidated profile.

Fitch affirmed Transportadora de Gas Internacional S.A. ESP (TGI)‘s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB’ and revised the outlook to negative from stable, in line with GEB. Fitch caps TGI’s SCP at Colombia’s ‘BBB-‘ country ceiling, as 100% of the company’s 2024 EBITDA was generated in Colombia.

TGI’s ratings receive a one-notch uplift considering GEB’s medium-to-high operational and strategic incentives to support TGI, equalizing their ratings, per Fitch’s Parent-Subsidiary Linkage Criteria. These incentives reflect GEB’s nearly 100% ownership of TGI and the substantial financial contribution to GEB of approximately 45% of GEB’s operating EBITDA. Fitch also expects investment in Colombia and midstream businesses, such as TGI’s, to remain a strategic focus for GEB’s future growth.

Fitch affirmed Empresas Publicas de Medellín E.S.P. (EPM)‘s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB+’ and revised the outlook to negative from stable, reflecting the change to the rating outlook of Medellín’s IDR (BB+/Negative). The linkage reflects the financial relevance of the company to Medellín, the lack of effective documentation that limits dividend distribution, and the city’s influence on the company’s administration and operations. EPM’s distributions contribute an average of 20% or more of government revenues and a material 20%-30% of the city’s investment budget.

Fitch affirmed Enel Colombia S.A. E.S.P.’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB’ and revised the outlook to negative from stable, reflecting the change to the rating outlook of the Republic of Colombia’s IDR. The company is headquartered in Colombia (BB+/Negative), and its operation in this country represented approximately 90% of its consolidated EBITDA accumulated for the LTM ended September 2024.

Fitch caps Enel Colombia’s SCP at Colombia’s ‘bbb-‘, given the substantial cash flow generation from the country. Cash flows from the operations in Panama (BB+/Stable), Guatemala (BB/Positive), and Costa Rica (BB/Positive), exceed the company’s hard currency debt service coverage for the next 12 months by more than 1.5x.

Hidroituango hydroelectric dam. (Photo credit: EPM)