Fitch Downgrades Ecopetrol, Ocensa, Candelaria; Sura, Emgesa, UNE EPM, Isagen, GEB, TGI Stay Strong

Fitch Ratings last week downgraded companies Ecopetrol S.A., Oleoducto Central S.A. (OCENSA) and A.I. Candelaria (Spain), S.L. and affirmed its ratings on other Colombian corporates following last week’s Sovereign Rating downgrade of Colombia.

The rating downgrades of Ecopetrol, OCENSA and A.I. Candelaria reflect the direct and indirect linkage of these companies to the Sovereign Rating downgrade of Colombia, which Fitch downgraded to ‘BBB-‘ from ‘BBB’. The ratings for Emgesa, Isagen and UNE EPM Telecomunicaciones have been affirmed at ‘BBB’ reflecting the country ceiling for Colombia of ‘BBB’. The negative outlooks on the foreign currency ratings reflect the fact that they could be negatively impacted by downgrades of the country’s Sovereign Rating and country ceiling.

These companies operate within Colombia and do not have substantial offshore cash or EBITDA from other countries. The ratings on Grupo de Inversiones Suramericana (Grupo Sura) (‘BBB’/Stable) reflect their offshore cash and EBITDA outside of Colombia. The applicable country ceiling for Grupo Sura is that of Chile, since cash flow from Chile is sufficient to cover interest expenses for both companies. Grupo Energia Bogota’s (GEB’s) (‘BBB’/Stable) applicable country ceiling is that of Peru, since cash flow from Peru is adequate to cover GEB’s interest expense. The ratings of Transportadora de Gas Internacional (TGI) (‘BBB’/Stable) reflect its strong linkage with its parent company, GEB. A further downgrade of Colombia’s Sovereign Rating will likely result in rating downgrades for Ecopetrol, OCENSA, A.I. Candelaria, Emgesa, Isagen and UNE EPM Telecomunicaciones.

RATING ACTIONS

• UNE EPM Telecomunicaciones S.A. LT IDR BBB Affirmed BBB
  • LC LT IDR BBB Affirmed BBB
• Ecopetrol S.A. LT IDR BBB- Downgrade BBB
  • LC LT IDR BBB- Downgrade BBB senior unsecured
  • LT BBB- Downgrade BBB
• Grupo de Inversiones Suramericana S.A. LT IDR BBB Affirmed BBB
  • LC LT IDR BBB Affirmed BBB
• Oleoducto Central S.A. (OCENSA) LT IDR BBB- Downgrade BBB
  • LC LT IDR BBB- Downgrade BBB
• Isagen S.A. ESP LT IDR BBB Affirmed BBB
  • LC LT IDR BBB Affirmed BBB
• Grupo Energia Bogota S.A. E.S.P. (GEB) LT IDR BBB Affirmed BBB
  • LC LT IDR BBB Affirmed BBB
• I. Candelaria (Spain), S.L. LT IDR BB+ Downgrade BBB-
  • LC LT IDR BB+ Downgrade BBB- senior secured
    LT BB+ Downgrade BBB-
• Emgesa S.A. E.S.P LT IDR BBB Affirmed BBB
  • LC LT IDR BBB Affirmed BBB senior unsecured
  • LT BBB Affirmed BBB
• Transportadora de Gas Internacional S.A. ESP (TGI) LT IDR BBB Affirmed BBB
  • LC LT IDR BBB Affirmed BBB senior unsecured
  • LT BBB Affirmed BBB

KEY RATING DRIVERS
The sovereign downgrade reflects a likely weakening of key fiscal metrics in the wake of the economic downturn caused by a combination of shocks stemming from the sharp fall in oil prices and efforts to combat the worldwide coronavirus pandemic. Fitch expects a moderate contraction of the Colombian economy by 0.5% in 2020, driven by a significant slowdown in domestic demand and oil exports, followed by a modest recovery of 2.3% in 2021.

A rise in the debt burden in recent years and an expected fall in tax revenues have left the government with less fiscal space to counteract economic shocks, in Fitch’s view. The Negative Outlook reflects downside risks to the outlook for economic growth and public finances, and to the capacity and quality of the government’s policy response to decisively cut deficits and stabilize debt over the coming years, given the scale of the shocks.

Developments that May, Individually or Collectively, Lead to a Positive Rating Action:

Fitch does not currently anticipate developments with a high likelihood of leading to a positive rating change. However, the main factors that could lead Fitch to stabilize the Outlook include:

• Fiscal consolidation consistent with an improved trajectory for public debt dynamics.
• A return to economic growth prospects consistent with medium term potential above 3%.
• Reduced external imbalances that improve external debt and liquidity ratios.

Developments that May, Individually or Collectively, Lead to a Negative Rating Action:

• Failure to achieve a fiscal consolidation consistent with stabilization and eventual reduction in the government debt burden.
• Damage to medium term growth prospects.
• Sustained large external imbalances that lead to a continuous rise in the external debt burden.

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