Investors organize as Ecuador talks begin

Investors organize as Ecuador talks begin

Asset Management Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Coronavirus Ecuador Latin America

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Investors holding several of Ecuador's sovereign bonds said Thursday that they had formed a committee to conduct talks with the government over a debt restructuring plan as the nation grapples with the COVID-19 pandemic.

"The committee is representative of Ecuador's bondholder base and includes holdings across each series of the bonds," the institutional bondholders said in a statement.

The committee added that it has hired BroadSpan Capital and UBS as financial advisers in the negotiations.

The primary objective is to facilitate "constructive dialog" and ensure that "the interests of all holders of Ecuador's international bonds are considered and protected in any re-profiling effort," the committee said, adding that bondholders are "sensitive to the challenges Ecuador is facing."

"The committee plans to conduct any interactions with the authorities in a manner that is consistent with the G20-endorsed Principles for Stable Capital Flows and Fair Debt Restructuring, which includes the same commitments as those outlined by authorities," it said.

The announcement came one day after Deputy Finance Minister Esteban Ferro kicked off negotiations through a video conference where he offered investors an update on Ecuador's macroeconomic situation, debt management strategy and the next steps in the process.

The objective is to launch an exchange offer to the investor community around the end of June or first week of July, and to finalize the transaction by the end of next month, Ferro said.

In April, creditors had agreed to defer taking payment on Ecuador's bonds until August to provide time for negotiations.

Ferro underscored the limits of fiscal consolidation in the short term, given the need to combat the COVID-19 pandemic and as well as the need to reactivate the economy. He also underlined that the country was still struggling with a $3.5 billion financing gap for 2020.

In the short term, Ecuador is seeking immediate liquidity relief to face the COVID-19 outbreak amid the collapse in oil prices, Ferro said in the video conference, "by way of reduced coupon payments in the short term followed by gradual increases and no principal amortizations in the short term."

In the medium term, Ecuador must lower its gross financing needs to less than 6% of GDP, a threshold set by the International Monetary Fund (IMF) for 2025 to 2030. "This highlights the need for debt relief," Ferro said. 

As of Wednesday, Ecuador owes $12.3 billion, or 23% of its total debt to multilateral lenders at an average rate of 3.8%. Bilateral debt, composed mostly of debt to China, totals $6.5 billion, or 12% of all debt, at an average rate of 4.2%. International bonds, totaling $17.7 billion represent 33% of all debt and carry an average interest rate of 8.7%, Ferro said.

Ferro said that Ecuador plans to continue seeking new money from multilateral lenders, from which the country has secured funding amounting to $3.4 billion in 2020, because significant debt payments for the international bonds begin in 2022. "The debt management exercise will aim at smoothing these financing walls," Ferro said.

Local debt, which represents approximately 25% of Ecuador's total debt, totals $13.3 billion. "It is important to mention, that within domestic debt, we're accounting close to $6 billion of arrears," he said.