Ecuador Leans on Locals

Ecuador is planning to raise at least $1.5bn in the local market this year, finance minister Maria Elsa Viteri tells LatinFinance. “At a minimum, we’ll get $1.5bn,” says the minister. “If the market wants more, there will be more,” she adds. Issuance will mostly be in the form of bonds with tenors of 5-10 years, where the government detects strong demand, but also at the short end. A Quito-based banker says the government could place $200m-$300m tranches of 5-7 years, mainly with the social security system. “Prices are very attractive for the sovereign,” adds the banker. Ecuador recently sold 13-month paper at around 4%. “The market wanted a lot more,” says Viteri. She does not expect the domestic program to crowd out local corporates. “There’s room for everybody,” says the minister. Local bankers say the country – which is exiled from international capital markets after defaulting on 2 bonds – has a $4bn gap to make up this year. Viteri says Ecuador needs more like $3.3bn in financing to maintain investment at a minimum level. Of that, $1.8bn will come from oil revenue. Another $950m can come from multilaterals, says Viteri, and Ecuador is also considering bilateral lines from Venezuela, Russia and China. However, bankers say that Ecuador will only extract $700m-$1bn from the local market and roughly $1bn from multilaterals. Another forward sale of oil to China is possible, but funding is seen constrained at around $2.5bn. “The difference will be a difference in spending,” says a senior Quito-based banker with knowledge of the sovereign’s requirements. The government is also being pitched an oil hedge to protect itself from over-exposure to crude price fluctuations. Viteri says that a deal could be signed this year, though there is no urgency to proceed given the state of world markets. “This year we’ll decide when and what,” says Viteri. The minister adds that Ecuador will continue to make coupon payments on the 2015 bond.