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Ecuador Plans Exchange, New Bond

Mar 15, 2013

Ecuador plans to launch an exchange offer for holdout creditors, clearing the way for a new sovereign bond sale, deputy finance minister Fausto Herrera said.

Ecuador plans to launch an exchange offer by June for holdout creditors from its $3.2 billion 2008 default, the country's deputy finance minister Fausto Herrera has told LatinFinance. The exchange would clear the way for a sovereign bond issue of between $400 million and $500 million in the coming year, he added.

"We're going to do a new offer in the first semester of this year to resolve the holdouts," Herrera said, adding the terms would be "a little more favorable" than its previous exchange offer in 2009, when it repurchased about $3.2 billion in defaulted bonds at 35 cents on the dollar.

"President [Rafael] Correa believes we have the financial strength to go to the market with a new offer," he said. A fresh exchange would "take out" the principal hurdle standing in the way of returning to the international capital markets. It would also dispel any fears that Ecuador could follow Argentina in being taken to court by holdout creditors, he said.  Herrera said the holdouts represent a "fairly marginal" sum. It is believed they may represent up to $300 million.

"We want to diversify our sources of capital," Herrera said, adding that the sovereign would return to the international bond market "this year or next" depending on the size of the budget deficit. 

The revelation ends months of speculation over the sovereign's intention to normalize international financial relations, which broke down following Ecuador's default. Herrera said a new issue would go ahead if the sovereign received terms similar to what it pays on its loans from China, between 7.0% and 7.5%. 

Ecuador's 9.375% $650 million 2015 bond has been trading in around the mid 7% range, according to traders. Honduras on Tuesday completed its debut international bond sale, paying 7.5% on a $500 million 2024 bond. That followed Paraguay's debut bond in January paying 4.625% for a similar tenor, and Bolivia which paid 4.875% on a 10-year bond in October.

Investors have questioned the sovereign's ability to return to the market. 

"Willingness to pay is the huge hurdle for them to overcome in terms of their reputation," said Jeremy Brewin, portfolio manager at Aviva Investors. But he added: "the market is very forgiving."

An Ecuadorian delegation, led by finance minister Patricio Rivera will meet ratings agencies in New York next week, Herrera said. The sovereign is rated Caa3/B/B-.


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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management