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Oleoducto Central S.A. -- Moody's affirms Ocensa's Baa3 ratings; changes outlook to negative

·14 min read

Rating Action: Moody's affirms Ocensa's Baa3 ratings; changes outlook to negativeGlobal Credit Research - 31 Aug 2022New York, August 31, 2022 -- Moody's Investors Service (Moody's) today affirmed Oleoducto Central S.A.'s (Ocensa) Baa3 senior unsecured ratings and changed the ratings outlook to negative from stable following the affirmation of Ecopetrol S.A.'s Baa3 ratings with a negative outlook and the downgrade of its Baseline Credit Assessment (BCA) to ba3 from ba1 on 24 August 2022.Affirmations:..Issuer: Oleoducto Central S.A.....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3Outlook Actions:..Issuer: Oleoducto Central S.A.....Outlook, changed to negative from stableRATINGS RATIONALEMoody's decision to change the outlook on Ocensa's Baa3 ratings to negative from stable was based on the weaker intrinsic credit risk profile of its main shareholder, Ecopetrol, whose BCA (a measure of the company's intrinsic credit risk without support considerations) was lowered to ba3 from ba1 on 24 August 2022, when Moody's affirmed the company's rating at Baa3 with a negative outlook, primarily based on elevated refinancing risk. Ocensa has adequate corporate governance practices regarding independent board members and minority veto rights on capital structure, dividends, capital spending, and asset sales. However, the company remains vulnerable to possible adverse influence by its main shareholder and customer, Ecopetrol S.A., which indirectly owns over 70% of Ocensa's capital and is the off taker of over 70% of the company's volume capacity.Ocensa's Baa3 ratings reflect its low financial leverage (gross debt/ EBITDA lower than 0.45x) and leading industry position in Colombia; its strategic importance to Ecopetrol; and the favorable industry dynamics in Colombia in terms of preference for pipeline transportation. Ocensa's ratings also incorporate its regulated tariffs and sales contract structure, which support solid margins and predictable cash flows. These factors help mitigate its business exposure to a single asset (pipeline); its small scale within the midstream peer group; and its high dividend payout policy. Ocensa's Baa3 ratings also take into account Moody's expectation of at least stable oil production in Colombia (Baa2 stable) in the foreseeable future, despite possible changes in the government's energy agenda, and the rating agency's belief that Ocensa will remain the transportation pipeline of choice in the country.Ocensa has good liquidity. The company's next major debt payment of $500 million is due in May 2027 and its cash on hand as of March 31, 2022 was close to $199 million. Moody's expects the company's capital spending in the next couple of years to be low and mainly focused on maintenance and internal projects. Ocensa has no committed bank facilities but has close relationships with Colombian banks.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSOcensa's ratings could be upgraded if i. it maintains its credit metrics at current levels but reduces distributions to shareholders to levels more aligned with the interests of bondholders and if ii. Ecopetrol's ratings are upgraded, given the close linkage between both companies from the control and revenue perspectives. An upgrade of Colombia's sovereign rating would not necessarily trigger an upgrade of Ocensa's rating.In turn, large projects or acquisitions that increase financial leverage could trigger a negative action on Ocensa's rating, although Moody's believes that the company's management and Ecopetrol are aligned in a desire to maintain modest leverage at the pipeline. A downgrade of Ecopetrol's or Colombia's ratings could result in a rating downgrade for Ocensa.The principal methodology used in these ratings was Midstream Energy published in February 2022 and available at https://ratings.moodys.com/api/rmc-documents/379531. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Ocensa is the largest crude oil pipeline and the only public-use pipeline in Colombia. Its pipeline is about 848 kilometers (km) long (836 km on land and 12 km offshore) with 745,000 barrels per day (bpd) of nominal capacity and 537,000 barrels per day of average volume. The company is owned 72.7% by Ecopetrol through its wholly owned midstream subsidiary, Cenit SAS, and joint venture composed by Romero Group and I Capital Square (27.35% in aggregate), a private equity firm. In March 2022, the company's assets amounted to more than $1.75 billion.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Nymia C. Almeida Senior Vice President Corporate Finance Group Moody's de Mexico S.A. de C.V Ave. Paseo de las Palmas No. 405 - 502 Col. 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