Ecopetrol launches $2bn bond issue

Published 19 January 2023, 20:52:09.864 GMT

Colombia’s national oil company (NOC) Ecopetrol has paid a premium to return to the global bond market for the first time since the fourth quarter of 2021.

Sources familiar with the matter told Bloomberg last week that the state-owned firmed had sold $2bn worth of 10-year, US dollar-denominated notes with a coupon of approximately 9% at a spread of 539 basis points. In October 2021, by contrast, the company had sold benchmark bonds at a spread of 307 basis points.

Ecopetrol is one of many emerging market borrowers to face rising rates. Colombia in particular has been compelled to pay a premium for credit since losing its investment grade in 2021, and the extra costs have only risen since the leftist candidate Gustavo Petro was elected to the presidency last year. The Petro administration’s stated ambition to phase out oil and coal as part of the energy transition has hampered investor confidence, particularly since the government owns an 88.5% share in Ecopetrol.

In the meantime, the NOC is working to cover its budget. Last week, Ecopetrol confirmed that it had issued new bonds as part of a wider effort to fund its 2023 investment plan while also paying off some of its existing debts.

In addition to the $1.8bn of bonds due in September, Ecopetrol still owes an outstanding $472mn on its loan that it took out to finance its acquisition of Interconexion Electrica SA (ICA), a Colombian utility company that it purchased in 2021.

Regarding Ecopetrol’s decision to sell at a seemingly inopportune time, Lorena Reich, a senior credit analyst at Lucror Analytics, offered the following assessment: “The company has a very ambitious capex plan for the year plus the maturity of the 23s [23-year notes] in September and the ISA loan, so I guess they want to start pushing those maturities. That’s the only reason why I think they would pay so much and not wait for better technicals.”

Ecopetrol’s sale is the first issuance of 2023 for a major Latin American corporate borrower. Following this sale, the Mexican government closed a $4bn bond sale.

By Mathew Cohen