NEW YORK, Jan 19 (IFR) - Ecopetrol bonds were underperforming in a stronger Latin American credit market on Tuesday after Moody’s downgraded the Colombian oil name to just a notch above junk.
The rating agency cut the state-controlled company’s senior unsecured ratings to Baa3 from Baa2 on Monday, and put it on review for a further downgrade to sub-investment grade.
While debt servicing is manageable over the next few years, persistently low crude prices will impact the state-controlled company’s credit metrics, Moody’s said.
A capital spending program aimed at sustaining reserves and production will be hit by weaker cash generation, higher leverage and narrower financing options for the oil industry overall, it said.
Ecopetrol’s 5.375% 2026s were underperforming the curve and were being quoted at around 77.00-78.00, or down about 1.5 points on the day, according to a New York-based trader.
But its 7.625% 2019s were outperforming after only falling about 50 cents to be quoted at 103.25-104.25, while the 2023s were down about one point at 85.25-86.25.
“They have a one notch buffer (from junk) so they have to do what they have to not turn into Petrobras,” said the trader.
Moody’s said it would focus on how lower oil prices will impact cash generation and if Ecopetrol will be forced to reduce costs, cut capex or sell assets to protect liquidity.
Ecopetrol and Colombia have been cited as likely candidates for primary market issuance in the first quarter, but with oil price volatility souring sentiment, bankers think the two borrowers are likely to wait.
The sovereign’s funding needs are light this year, especially after receiving a cash injection following its sale of a 57.6% stake this month in power generator Isagen to Canada’s Brookfield for US$1.99bn.
“Colombia’s funding needs this year (in the international market) are US$1.5bn,” said a DCM banker.
“They are cash rich especially after the sale of Isagen and there is no particular rush.”
This comes as the region’s credit markets struggled to hold on to earlier gains Tuesday following a rally in oil on news that Chinese demand likely hit a record high last year, according to Reuters. (Reporting by Paul Kilby; Editing by Marc Carnegie)