The allocation follows capital discipline criteria and maintains investment levels comparable to projected 2025 year-end figures. Approximately 70% of the total budget ($17.2 trillion COP) is designated for core hydrocarbons operations, including production, refining, and transportation. The remaining 30% ($7.1 trillion COP) is slated for energy transition initiatives, power transmission, and corporate investments.

The 2026 financial model is built on an estimated Brent crude price of $60 USD per barrel and an average annual exchange rate near COP 4,050:1 USD. Under these assumptions, the Ecopetrol Group projects an approximate EBITDA margin of 40%, in line with 2025 levels. Transfers to the Colombian government are estimated at approximately $28 trillion COP. To support these financial targets and maintain debt metrics, the group plans to implement a portfolio rotation program.

A profitability and efficiency program is expected to contribute approximately $5.7 trillion COP, impacting EBITDA, investments, and working capital. This program is structured to support performance in total refining costs and transported barrel costs, while sustaining lifting costs below $12 USD per barrel.

Approximately $1.7 trillion COP is allocated to the company’s “SosTECnibility” strategy, focusing on climate change, sustainable territories, materials and waste management, and occupational health.

Hydrocarbons and Midstream Operations

Investment in exploration and production totals $14 trillion COP, constituting the largest single allocation. This is split with 89% dedicated to crude oil and 11% to natural gas, focused on achieving organic production levels of 730–740 thousand barrels of oil equivalent per day (BOED). Production is anticipated to consist of 80% crude, 15% gas, and 5% white products, utilizing recovery technologies to optimize resources. The strategy involves increasing crude oil output in Colombia to offset natural gas field declines.

The Ecopetrol Group plans to drill between 380 and 430 development wells, with 95% located in Colombia and 5% in the US. The exploration program includes 8 to 10 exploratory wells in Colombia, primarily in offshore, Meta, and Putumayo areas. Gas investments are estimated at $1.5 trillion COP, mainly targeting the Llanos Foothills and offshore areas to develop Caribbean gas, contributing an estimated 105–110,000 BOED.

Transport investments total about $1.5 trillion COP, representing 6% of the budget. The funding is primarily for integrity and reliability projects managed by Cenit, Ocensa, Oleoducto de Colombia S.A.), and Oleoducto del Llano S.A. Transported volumes are targeted between 1,110,000 and 1,120,000 barrels per day.

Refining investments are set at close to $1.7 trillion COP (7% of the budget), targeting reliability, availability, and sustainability at the Barrancabermeja and Cartagena refineries, aiming to reduce product imports and improve fuel quality. Combined refinery throughput is forecast between 410,000 and 420,000 barrels per day.

Energy Transition and Transmission Segment Growth

Interconexión Eléctrica S.A. E.S.P. (ISA) (BVC: ISA), an Ecopetrol subsidiary, is allocated between $6.2 and $6.8 trillion COP in 2026, comprising roughly 26% of the group’s annual budget, with approximately 80% dedicated to its electric transmission business.

For the core energy transition efforts, approximately $0.9 trillion COP (3% of the plan) is earmarked for non-conventional renewable energy and energy efficiency projects. This investment seeks to add approximately 750 MW of clean energy generation capacity from projects in operation, construction, and development.

Renewable Energy Acquisition Moves Ecopetrol Closer to 900 MW Target

In a separate announcement, Ecopetrol confirmed the successful conclusion of negotiations on November 28, 2025, with Grenergy Renovables S.A. (BME: GRE), a Spanish renewable energy company. The negotiations concern the potential acquisition by Ecopetrol of seven solar photovoltaic project companies in Colombia, located across the departments of Córdoba (3), Cesar (2), Magdalena (1), and Sucre (1).

Each of the seven companies owns the assets, licenses, agreements, and permits for a solar project with an estimated renewable energy generation capacity of up to ~12.6 MWp. The completion of this acquisition is contingent upon certain conditions precedent and legal requirements.

Upon closing, the transaction would contribute to Ecopetrol’s decarbonization and energy transition goals by adding installed capacity toward its internal target of 900 MW of self-generated renewable energy. These projects are intended to support low-emission energy generation under competitive conditions for the Ecopetrol Group’s self-consumption, reducing the company’s reliance on bilateral energy contracts and mitigating exposure to spot market energy purchases.

Corporate Governance Changes

Ecopetrol also reported changes to its corporate leadership. During a meeting held on November 27, 2025, the board of directors elected Ángela María Robledo Gómez as Chairwoman and Álvaro Torres Macías as Vice Chairman of the Board. Both individuals were elected to the Ecopetrol Board of Directors in a slate that was “proposed by the government” (President Gustavo Petro’s administration).

Additionally, the company reported the resignation of Independent Director Guillermo García Realpe, citing personal reasons. His resignation is effective as of December 12, 2025. Ecopetrol acknowledged his service to the company during his tenure.

Ecopetrol operates as a key integrated energy firm on the American continent. In Colombia, it is responsible for more than 60% of hydrocarbon production and manages the majority of the nation’s transportation, logistics, and hydrocarbon refining systems. Through its 51.4% stake in ISA, the company holds positions in energy transmission across Brazil, Chile, Peru, and Bolivia, as well as road concessions in Chile, and participates in real-time systems management through XM and the Barranquilla – Cartagena coastal highway concession. Internationally, Ecopetrol has drilling and exploration operations in oilfields across the US (Permian basin and the Gulf of Mexico), Brazil, and Mexico.

The shareholder meeting, chaired by Colombia’s Minister of Finance and Public Credit, Germán Ávila, approved amendments to the company’s bylaws. Notably, the proposal submitted by the company’s majority shareholder, the Colombian government, which owns 88.49% of shares, was approved with 91.14% of the vote. An alternative proposal from Ecopetrol management received only 0.03% support, with 4.6% voting for neither proposal and 4.2% abstaining.

Separately, the Board of Directors appointed new leadership for two key executive positions, effective November 16.

Juan Carlos Hurtado Parra was named Executive Vice President of Hydrocarbons. Mr. Hurtado, who has been with Ecopetrol for approximately 23 of his 25 years in the energy sector, previously served as Vice President of Exploration, Development, and Production. He holds an Electrical Engineering degree from Universidad Industrial de Santander, a specialization from Universidad del Rosario, and an MBA from the University of Dundee. He replaces Rafael Ernesto Guzmán Ayala.

Rodolfo Mario García Paredes was appointed as the permanent Chief Compliance Officer. Mr. García, an attorney from Universidad del Rosario with a specialization from Universidad de los Andes, has been with the company for over 25 years and had been serving as the acting compliance head since June 2025.

The confirmation of a permanent Chief Compliance Officer occurs during a period of heightened legal and political scrutiny for the company. The appointment follows reporting by El Tiempo that senior compliance officials from Ecopetrol visited the United States Embassy in Bogotá this week. That visit was noted for its timing, coming after the United States Treasury Department imposed OFAC sanctions on President Gustavo Petro along with his wife, son, and interior minister, as reported here by Finance Colombia. The company is also managing the fallout from a contracting scandal at its affiliate Ocensa, also revealed this week by El Tiempo, which led to the resignation of Ocensa’s president.

Ecopetrol S.A. is the largest company in Colombia and is responsible for over 60% of the nation’s hydrocarbon production, in addition to managing transportation, logistics, and refining systems. Following its acquisition of 51.4% of Interconexión Eléctrica S.A. (ISA) (BVC: ISA), the company expanded into energy transmission, management of real-time systems through XM, and road concessions. Ecopetrol also maintains exploration and drilling operations in the United States (Permian basin and Gulf of Mexico) and Brazil. Through ISA, it holds positions in power transmission in Brazil, Chile, Peru, and Bolivia.

Above photo: Ecopetrol’s Reficar petroleum refinery in Cartagena. (photo courtesy Ecopetrol)

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)

The acquisition allowed OCENSA to invest its excess cash in an asset that Fitch expects to generate stable, permanent dividend cash flows for the company. RDC holds a 7.14% equity stake in Oleoducto de Colombia S.A. (ODC), a privately owned pipeline that has been operating for 35 years. The pipeline transports crude oil between the Vasconia Station in the municipality of Puerto Boyacá and the Coveñas maritime terminal in the municipalities of Coveñas (Sucre) and San Antero (Córdoba).

Fitch views ODC as financially stable. It generates low-risk dividends due to its strategic location for crude oil evacuation in Colombia. Fitch also expects the investment in ODC to generate significantly more revenue for OCENSA than it would from interest on its unused cash. The acquisition improves OCENSA’s business profile and enhances its existing revenue-based model. The fee-based structure, combined with fixed-price arrangements in ship-and-pay contracts, protects the company from direct exposure to commodity prices.

OCENSA has a strong liquidity and debt profile over the rating horizon. As of March 31, 2024, its only debt was USD400 million, with EBITDA leverage of 0.3x. Available cash at the end of Q12024 was USD330 million. The company has no major capex plans other than maintenance.

OCENSA’s ratings primarily reflect its linkage with Ecopetrol S.A. (BB+/Stable), which indirectly owns 72.65% of OCENSA. Ecopetrol is the largest crude oil producer in Columbia, and OCENSA’s operations are an integral part of its core business as its main off-taker. Fitch considers OCENSA strategically important for Ecopetrol, as the company heavily relies on OCENSA’s infrastructure to transport crude oil from production fields to its refineries and export terminal. Approximately 84% of the total crude oil transported in 2023 was for Ecopetrol.

Request more information for free

Congress Highlights:

• 200+ decision making executives participate in the Colombia Oil & Gas which is an strategic platform for the leaders of the hydrocarbons industry. Bringing together delegations from national and international companies, as well as government officials, regulatory bodies, academia, project owners, technology and services providers, and international and local investors
• 15+ oil and gas production and exploration investment projects under planning, construction, expansion and modernization with a development term of 2022-2026 in Colombia
• 40+ industry leaders and experts will present and discuss the main topics impacting the industry development in Colombia and Latin America
• Strategic opening session: Recovery of the Hydrocarbon Sector as an Engine of Post-Pandemic Growth – Cooperation of the government, NOC, IOC and international investors to develop Colombia’s oil and gas resources
• Key and Innovative Solutions for Efficiency and Cost Reduction: Get to know the main solutions to the biggest challenges that the oil and gas industry presents in terms of innovation
• Round tables:
• Overview of Gas reserves in Colombia and the Energy transition
• Round table: Infrastructure – Pipelines, Refineries and LNG Plants

Updates and Presentation of the Most Promising Oil & Gas Projects in Colombia: Planning, modernization, and construction of projects in the portfolio of the hydrocarbon sector.

Guarantees for attracting investment in the country’s oil and gas industry: Strategies to attract investment for the development of exploration and production projects with legal and financial guarantees.

Decarbonization of the Oil & Gas Industry: From Theory to Practice – Applicable strategies to make petroleum and industrial processes more sustainable towards the goal of being carbon neutral

• Efficient Production in the Digital Age: Optimization of costs and efficiency through artificial intelligence, data management and other resources
• Dedicated exhibition of cutting-edge equipment and technologies for hydrocarbons industry delivered by local and global leaders
• Ask your burning questions, ask for advice, and share your experience during and after the sessions!
• Unprecedented networking opportunities! 1-2-1 online and face-to-face business meetings, networking round tables, cocktail reception, interactive discussions. Take this opportunity to exchange business cards with ALL conference participants!

Tap here to request more info for free

Organizing Committee:
Catalina Velasco, LatAm Marketing Manager
Email: cvelasco@vostockcapital.com

The 4th International Congress and Exhibition Colombia Oil and Gas will take place at DoubleTree By Hilton Bogota Salitre AR at Carrera. 60 #22-99 in Bogotá

Date: 23-24 June 2022

Organizer: Vostock Capital

Web site: https://bit.ly/3xhxHBS

Request more information

Congress Highlights:

• 200+ decision making executives participate in the Colombia Oil & Gas which is an strategic platform for the leaders of the hydrocarbons industry. Bringing together delegations from national and international companies, as well as government officials, regulatory bodies, academia, project owners, technology and services providers, and international and local investors
• 15+ oil and gas production and exploration investment projects under planning, construction, expansion, and modernization with a development term of 2022-2026 in Colombia
• 40+ industry leaders and experts will present and discuss the main topics impacting the industry development in Colombia and Latin America
• Strategic opening session: Recovery of the Hydrocarbon Sector as an Engine of Post-Pandemic Growth – Cooperation of the government, NOC, IOC and international investors to develop Colombia’s oil and gas resources
• Key and Innovative Solutions for Efficiency and Cost Reduction: Get to know the main solutions to the biggest challenges that the oil and gas industry presents in terms of innovation
• Roundtables:
  • Overview of Gas reserves in Colombia and the Energy transition
  • Round table: Infrastructure – Pipelines, Refineries and LNG Plants
  • Updates and Presentation of the Most Promising Oil & Gas Projects in Colombia: Planning, modernization, and construction of projects in the portfolio of the hydrocarbon sector
  • Guarantees for attracting investment in the country’s oil and gas industry: Strategies to attract investment for the development of exploration and production projects with legal and financial guarantees.
• Decarbonization of the Oil & Gas Industry: From Theory to Practice – Applicable strategies to make petroleum and industrial processes more sustainable towards the goal of being carbon neutral
  • Efficient Production in the Digital Age: Optimization of costs and efficiency through artificial intelligence, data management and other resources
  • Dedicated exhibition of cutting-edge equipment and technologies for hydrocarbons industry delivered by local and global leaders
  • Ask your burning questions, ask for advice, and share your experience during and after the sessions!
  • Unprecedented networking opportunities! 1-2-1 online and face-to-face business meetings, networking round tables, cocktail reception, interactive discussions. Take this opportunity to exchange business cards with ALL conference participants!

Tap here to request more information

For more information, contact:
Catalina Velasco, LatAm Marketing Manager
Email: cvelasco@vostockcapital.com

Sponsored Content

The downgrade of Ecopetrol’s, OCENSA’s and A.I. Candelaria’s foreign currency (FC) and local currency (LC) Issuer Default Ratings (IDRs) reflects the direct and indirect linkage of these companies to the sovereign rating of Colombia, which Fitch downgraded last week to ‘BB+’ from ‘BBB-‘ with a Stable Outlook.

The downgrade of Isagen and TIGO UNE’s FC IDRs reflects the cap imposed by the country ceiling of Colombia (‘BBB-‘), as these companies do not have substantial assets, offshore credit facilities, or cash held or generated abroad to reduce transfer and convertibility risk. Fitch affirmed their LC IDRs, which remain one notch above Colombia’s country ceiling. The downgrade of ISA’s FC and LC IDRs reflect its linkage with the Republic of Colombia, which owns 51.4% of the company. Fitch considers ISA’s two-notch differential above its parent appropriate.

Statement from Fitch Ratings reprinted as a courtesy to our readers.

Key Rating Drivers

The sovereign downgrade reflects the deterioration of the public finances with large fiscal deficits in 2020-2022, a rising government debt level, and reduced confidence around the capacity of the government to credibly place debt on a downward path in the coming years. Colombia’s gross general government debt (GGGD) to GDP is forecast to reach 60.8% in 2021, more than double the 30% level when Fitch upgraded Colombia back to the ‘BBB’ category in 2011. Fitch expects debt to continue to rise through 2022 and does not expect significant debt reduction over the medium term, leaving Colombia vulnerable to shocks. Fitch sees significant risks to the government’s fiscal consolidation plan, given the reliance on tax administration efforts and divestments, as well as the uncertainty of the impact of the pending tax reform.

Rating Sensitivities

Factors that could, individually or collectively, lead to positive rating action/upgrade:

• Public Finances: Achieving sustained primary fiscal balances consistent with a steadily declining GGGD to GDP ratio that enhances fiscal policy credibility;
• Macro: Higher sustained medium-term economic growth above Colombia’s historical averages of about 3.5%;
• Structural: Steady improvement in governance indicators that leads to improved social cohesion and reform momentum, improving Colombia’s structural fiscal position as well as medium term growth prospects.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

• Public Finances: A failure to achieve fiscal consolidation that leads to a significant deterioration in Colombia’s general government debt to GDP ratio relative to the ‘BB’ peer median;
• Macro: Diminished medium-term growth prospects well below Colombia’s historical potential of 3.5%, leading to continued high unemployment and poverty levels with social ramifications;
• External Finances: Sharp further increase in net external debt to GDP, raising external vulnerabilities.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579 .

The rating actions are linked to the recent downgrade of Colombia’s sovereign and the corresponding Country Ceiling.

ESG CONSIDERATIONS

Ecopetrol has an ESG Relevance Score of ‘4’ for Exposure to Social Impacts due to multiple attacks to its pipelines, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Ecopetrol has ESG Relevance Score of ‘4’ for Governance Structure, due to its nature as a majority government-owned entity and the inherent governance risk that arise with a dominant state shareholder. This has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors.

• Ecopetrol S.A. (NYSE: EC) — Colombia’s largest petroleum company, majority owned by the government
• Grupo de Inversiones Suramericana S.A. (Grupo Sura) — Colombia’s largest Insurance conglomerate
• ISAGEN, S.A. E.S.P. — A Colombian Energy and infrastructure provider controlled by Canada’s Brookfield Asset Management
• Oleoducto Central, S.A. (OCENSA).— Oil pipeline operator affiliated with Ecopetrol

Although the following two entities have ratings above that on Colombia’s sovereign rating, S&P downgraded them to ‘BBB-‘ from ‘BBB’ while assigning a stable outlook:

• Enel Americas S.A. — Electrical utility subsidiary of European utility conglomerate Enel.S.p.A.
• Emgesa S.A. E.S.P.— Wholesale electricity provider, also a subsidiary of Enel.

The ratings on both entities are higher than on Colombia’s sovereign rating, primarily because of the potential support they would receive in case of financial distress from their parent companies — Enel SpA (BBB+/Stable/A-2) in the case of Enel Americas, and Enel Americas for Emgesa.

S&P also lowered the issue-level ratings on OCENSA parent A.I. Candelaria Spain to ‘B+’ from ‘BB-‘. The ratings firm says that this is because they still see a notch differential due to its total reliance on subordinated dividend payments from its sole investment, OCENSA, which distributes them after funding its operating and financial needs.

S&P also affirmed the ‘AA’ rating on toll highway developer Sociedad Concesionaria Vial Montes de María S.A.S. (Puerta de Hierro). The outlook remains stable.

The latter rating action follows the failure of the government’s fiscal reform proposal amid high spending pressures, resulting in a sharply lower likelihood of Colombia improving its fiscal position following a recent and marked deterioration. Given high external vulnerability, comparably weak economic profile–balanced by adequate institutions and monetary credibility–Colombia’s debt will stabilize at around 60% of GDP during 2021-2024 and will post relatively wide fiscal deficits. These factors are no longer consistent with an investment-grade foreign currency rating (readers may refer to S&P’s “Colombia Long-Term Foreign Currency Rating Lowered To ‘BB+’ On Persistent Fiscal Weakness; Outlook Stable“, published on May 19, 2021, for further details).

This is because according to Standard & Poor, these firms continue to be exposed to Colombia’s sovereign risk given that they operate in what S&P deems highly regulated sectors (dependent on rate adjustments approved by government regulators) and that demand for their services is in some cases correlated to the country’s GDP growth pace. Consequently, S&P believes the entities could suffer from heavier regulation in a sovereign stress scenario, and wouldn’t be able to generate or maintain sufficient cash to honor their financial obligations under a sovereign default scenario.

Ecopetrol

This is the case for Ecopetrol, of which Colombia’s government is a controlling shareholder. Therefore, ratings on the company and its subsidiaries move in tandem with those on the sovereign. In S&P’s view, the final rating on Ecopetrol is capped at the level of the ‘BB+’ foreign currency rating on Colombia, given the ratings firm’s expectation that the government could have a tendency to increase taxes or dividends if it faces fiscal or external stress, which could restrict Ecopetrol’s financial flexibility. Additionally, S&P’s assessment that the company has a very strong link with the government also limits the rating. As a result of the downgrade of Ecopetrol, S&P took a similar rating action on its subsidiary, OCENSA, because the ratings agency doesn’t believe there are meaningful regulatory mechanisms or other structural barriers that restrict the parent from accessing the subsidiaries’ cash flows in a scenario of distress. In addition, Ecopetrol is OCENSA’s main client, representing more than 80% of its revenue in 2020.

A.I. Candelaria Spain

S&P also lowered the issue-level rating on Candelaria’s notes, given 100% of its equity interests in OCENSA and its total reliance on subordinated dividend payments from the latter entity, which distributes them after funding its operating and financial needs. In addition, given that OCENSA is not publicly traded, it might be difficult for Candelaria to liquidate its investment if needed, and for S&P to forecast asset valuations relative to debt with certainty. The rating on Candelaria’s notes also captures the existing governance principles contained in the shareholders’ agreement whereby Candelaria holds veto powers over OCENSA’s material decisions such as business plans, large investments, and changes to the dividends policy.

Isagen

Isagen sells about 35% of its energy to distributors, which have their rates set by the regulator. Therefore, S&P says that it believes payments to Isagen–in case of a regulatory interference in distributors’ rates–could deteriorate. In addition, Isagen sells a portion of its output on the spot market, which could also be at its regulatory floor amid recession. Therefore, the sovereign rating caps the rating on Isagen, in S&P’s view.

Grupo Sura

S&P believes that Grupo Sura wouldn’t pass a Colombian sovereign default stress test scenario. The sovereign rating cap and risk to Grupo Sura in a sovereign default scenario reflect the high correlation between the company’s assets and dividends, and the country’s economy, because around 40% of assets operate mostly inside Colombia. The company is exposed to Colombia’s financial system because Grupo Sura has a stake in Bancolombia, which represents approximately 25% of the dividend stream. S&P says this limits the rating on Grupo Sura to the sovereign level because it is highly likely that a sovereign default would entail a significant shock to the country’s financial system.

Enel Americas

S&P predicts around 35% of Enel Americas’ EBITDA to come from Colombia in 2021, followed by Brazil (about 45%), Peru (15%), and Argentina (5%). Although Enel Americas’ debt repayment capacity remains stronger than those of the sovereigns where it operates, mainly because of the potential support it would receive from its parent company Enel in case of financial distress, the company’s downgrade reflects its sensitivity to deteriorating country risks.

The rating action on Emgesa follows the one on Enel Americas, given that the former plays an important role in the latter’s strategy in Latin America. Therefore, S&P expects the latter to support Emgesa under any foreseeable circumstance, including a hypothetical sovereign default of Colombia.

Puerta de Hierro –  Sociedad Concesionaria Vial Montes de María S.A.S.

S&P affirmed the rating on Puerta de Hierro as it reflects the guarantor’s creditworthiness. This is because Puerta de Hierro’s notes benefit from an irrevocable financial guarantee for interest and make-whole premium payment, in respect to the maximum guaranteed principal amount and for up to $350 million on principal from the US Government’s Development Finance Corp. (DFC). However, S&P revised downwards the project’s operations phase stand-alone credit profile to ‘bb+’ from ‘bbb-‘ because they consider the creditworthiness of the project’s main offtaker (Agencia Nacional de Infrastructura) to be one notch below its ‘BBB-‘ local currency rating on Colombia for the following reasons:

• There are no cross-default clauses linking these obligations with sovereign debt;
• S&P views the reporting of ‘Vigencias Futuras’ and other contingent liabilities as transparent because the government explicitly recognizes payment obligations and contingent liabilities that arise from this transaction. However, the government doesn’t report these 4G Highway-related obligations as sovereign debt.

Outlook

The stable outlook on these entities mirrors that on Colombia. The ratings on the latter pose a limitation on credit quality of corporate and infrastructure entities, given their exposure to sovereign risk. Therefore, S&P expects the ratings on these entities to move in tandem with the sovereign ratings in the next 12 to 18 months.

The stable outlook on Enel Americas mirrors that on Brazil and Colombia, its two main markets. Ratings on Emgesa are the same as on the parent and would move in tandem with the latter.

The stable outlook on Puerta de Hierro’s notes reflects S&P’s expectation of full coverage for the debt repayment given DFC’s financial guarantee. Therefore, the outlook on project’s notes reflects that on the US rather than Colombia. Moreover, the stable outlook reflects the guarantee coverage of over 60% stemming from the appreciation of the Colombian peso.

Downside scenario

In the next 12-18 months, S&P says it may downgrade these companies in case of a similar rating action on Colombia. The firm could lower the sovereign ratings if the potential long-term damage caused by the pandemic, other domestic developments, or new external shocks, prevent the Colombian economy from recovering in 2021 and results in lower-than-expected GDP growth in subsequent years. A perceived deterioration in Colombia’s institutional effectiveness, such as the inability to find political and social consensus to sustain growth and the country’s fiscal profile, could also translate into a downgrade.

S&P might also downgrade Enel Americas in case of a negative rating action on Brazil or if it believes that the company has become a less integral subsidiary for Enel. In such a case, they say they would also downgrade Emgesa.

S&P could lower the rating on Puerta del on Hierro in the next 12-24 months if DFC’s credit quality weakens, which could happen if S&P lowers the rating on the US or the relationship between the US government and DFC weakens.

Upside scenario

In the next 12-18 months, S&P indicates it could upgrade these companies if it takes a similar action on the sovereign rating on Colombia, while everything else remains equal. This can occur if there is faster-than-expected economic growth, coupled with structural fiscal measures, which reduce Colombia’s fiscal financing gap, lower the debt burden, and strengthen public finances. A larger and more diverse export sector, helping to reduce external vulnerability and strengthen economic resilience, could also result in the upgrade over the middle to long term.

In the next 18 months, S&P also says it could raise the rating on Puerta de Hierro’s notes if it either raises the rating on the US or if S&P believes the relationship between the US government and DFC strengthens.

See also: Colombians Take To The Streets To Protest, Lambast President Duque’s Fiscal Reform Package

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.

The partnership creates a shared distribution network in the Americas and will allow Tecnoglass to manufacture and sell Schüco-branded products in North America and Latin America.

Tecnoglass will also supply glass and aluminum products to the German-headquartered company, which specializes in window, door, and facade systems for homes and buildings.

“This alliance is a remarkable opportunity for Tecnoglass to serve new markets and expand its offering of cutting-edge products,” said Christian Daes, chief operating officer of Tecnoglass.

READ MORE: Tecnoglass to Pay Dividend of $0.14 per Share on November 19

“This is a win/win for both companies,” he added. “Jointly we will be able to take advantage of Tecngolass’ state-of-the-art production facilities while sharing each other’s established distribution networks across the Americas.”