Ecuador advances bond plans amid investment push

Ecuador advances bond plans amid investment push

Ecuador Bonds Economy & Policy Corporate & Sovereign Strategy

Ecuador is pushing ahead with plans to return to the dollar markets, its international trade minister Francisco Rivadeneira has told LatinFinance.

“Ecuador has the interest and now the capability to go back to the international capital markets,” Rivadeneira said Friday. “That includes issuing bonds. That is of interest.”

Ecuador has been looking to exchange defaulted debt in the hands of holdout creditors since the second quarter, as LatinFinance reported in May.

In the US to drum up interest for investment in Ecuador’s mining, oil, transport, and other projects, Rivadeneira said the country had become more attractive to foreigners.

“Our risk has lowered. We have political stability, macroeconomic stability. We have social stability, and we have a lot of interest from investors to come in and finance the country and different projects.

“We’ve seen, especially over the past year and a half, a lot of [firms from] Europe, Japan, South Korea, US and Canada are interested in investing.”

The country hoped to tap the international debt markets in 2014, “if not before”, Rivadeneira told LatinFinance.

An Ecuadorean bond would continue a run of rare Latin American sovereign borrowers in the dollar markets. Bolivia, Honduras and Paraguay are among those to have debuted, taking advantage of a period of investor enthusiasm for yieldy credits earlier this year and last year.

The cost of borrowing in the debt markets has risen since May, when the US Federal Reserve first raised the possibility it would end its quantitative easing program.

Ecuador borrows heavily from China — most recently signing a $1.2 billion bilateral loan in August. But with an economy heavily dependent on oil revenues, a fall in prices could increase the country’s budget deficit, says Capital Economics.

Diversifying investment

Ecuador’s budget deficit could hit 5% of GDP if oil prices fall to $90 a barrel over the next 12 months, which is the firm’s base case, Capital Economics has calculated.

“Growth has been propped up by a loosening of the public purse strings that may prove unsustainable if oil prices now decline,” the analysts said.

Rivadeneira outlined to LatinFinance a sweeping series of investment projects that will “change the production matrix of the country”, towards value-added goods. These included mining, oil, petrochemicals and transport investment.

A third oil refinery is set to come online in 2017 or 2018. The first part of the project has been 20% to 30% financed by the Ecuadorean government. The remainder of the $10 billion to $12 billion project has been financed through debt and equity, mainly with the Chinese government and Chinese companies, he said.

The refinery will be the largest in the South Pacific, and is likely to refine oil from Venezuela and Colombia, as well as from Ecuador, Rivadeneira said.

Ecuador is working on feasibility studies for a second part to the refinery, which will be privately financed, and which is likely to cost $12 billion to $15 billion.

The country is interested in attracting further investment in the mining industry. Already Chinese investors have put several billion into the country’s largest copper mine. Ecuador hopes to attract others through a concession model.

“We have some mines that are ready to be exploited,” said Rivadeneira. “We’re looking for partners.”

A new airport in Guayaquil is also planned in the coming years and is likely to be financed through a concession model, he said. LF