Ecuador Plans Exchange, New Bond

Ecuador plans to launch an exchange offer to holdouts from its 2008 default, clearing the way for a $400m-$500m new bond issue in the coming year, the country’s deputy finance minister Fausto Herrera tells LatinFinance. “We’re going to do a new offer in the first semester of this year to resolve the holdouts,” Herrera says, adding the terms would be “a little more favorable” than its previous exchange offer in 2009, when it repurchased about $3.2bn 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 says. 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. Herrera says the holdouts represent a “fairly marginal” sum. It is believed they may represent up to $300m. “We want to diversify our sources of capital,” Herrera says, 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% $650m 2015 bond has been trading in around the mid 7% range, according to traders. Honduras last week completed its debut international bond sale, paying 7.5% on a $500m 2024 bond. That followed Paraguay’s debut bond in January paying 4.625% for a similar tenor, and Bolivia’s, coming at 4.875% in October. An Ecuadorian delegation, led by finance minister Patricio Rivera will meet ratings agencies in New York this week. The sovereign is rated Caa3/B/B minus.