Ecopetrol Dividend Policy Seeks to Prevent Slide Into Junk

  • BNP Paribas hired to sell Propilco plastics unit: Gaviria
  • Slump in oil prices increases Propilco's value: Gaviria

Colombia’s state-controlled Ecopetrol SA will pursue a dividend policy this year designed to safeguard the company’s investment grade rating amid the slump in oil prices, according to Simon Gaviria, director of the country’s national planning department.

The company is preparing a dividend proposal for the shareholders’ meeting, usually held in March, that ensures metrics such as the ratio of debt to earnings are in line with other investment-grade companies, said Gaviria, who sits on Ecopetrol’s board. An obligation to pay a minimum 70 percent of net income was scrapped at last year’s meeting.

“The priority right now, given the way credit agencies are working, is to make sure that Ecopetrol sustains its investment grade status,” Gaviria said Monday in an interview in his Bogota office.

On Jan. 18, Moody’s Investors Service lowered the company to the cusp of junk and placed it on review for more cuts, citing “persisting stressed oil prices, which will continue to negatively affect the company’s cash flow generation and credit metrics.” Amid the rout in global commodity prices, some oil producers and miners including Vale SA have said they may not pay a dividend this year, in a bid to conserve cash.

Potential Sale

Ecopetrol slashed its 2016 investment plan to $4.8 billion, down 40 percent from last year, and is selling a series of non-core assets to bolster its balance sheet. Last week the board approved a potential sale of its plastics unit Polipropileno del Caribe S.A., or Propilco.

BNP Paribas SA is advising Ecopetrol on the sale, with the slump in oil prices increasing the asset’s value due to lower input costs, Gaviria said. In 2007 Ecopetrol agreed to purchase Propilco for $690 million.

“The important thing about Propilco is that it’s counter-cyclical to the oil industry,” he said. “So it’s the right timing to explore the possibility” of a sale.

Ecopetrol hopes to get a “very good price” for Propilco, Chief Executive Officer Juan Carlos Echeverry said on W Radio Tuesday. The attempt to sell Propilco is part of a “back to basics” campaign of focusing on production and exploration, and getting out of businesses outside the company’s core competence, according to Gaviria.

Crude prices fell to a 12-year low last month as OPEC increased output amid signs of deteriorating industrial activity in China. Ecopetrol shares have lost more 60 percent in dollar terms over the last year, the worst performer after Petroleo Brasileiro SA among major oil companies.

Ecopetrol shares fell 1.5 percent to 1,005 pesos at 11:20am in Bogota Tuesday.

Before it's here, it's on the Bloomberg Terminal.