18 November 2015

Eight Defaults and 180 Years Later, Ecuador to Repay Bondholders


By Nathan Gill
November 18, 2015 (Bloomberg) -- Ecuador is poised to do something it’s never done in its more than 180-year history: repay a bond.

“What’s positive is that Ecuador has a new chance to honor, for the first time, the payment of its bonds,” said Santiago Mosquera, a former Fitch Ratings analyst who is now head of research at Quito-based brokerage Analytica. “But that’s probably not enough to lower rates to what they were in their last bond sale.”

Click here to read the full story on Bloomberg News.

24 August 2015

Everything Is Going Wrong in Ecuador

By Nathan Gill
August 24, 2015 (Bloomberg) -- As emerging markets come unhinged around the world, few nations face tougher challenges than Ecuador, a dollarized oil producer in El Nino’s path, where street protests are flaring up alongside one of the planet’s most dangerous volcanoes.

“Sometimes it makes you want to laugh,” said Jose Hidalgo, director of Cordes, a Quito-based research institute. “What else could happen to us?”

Click here to read the full story on Bloomberg News.

09 July 2015

Pope Apologizes for Church Abuse in Conquest of the Americas

By Nathan Gill
July 9, 2015 (Bloomberg) -- Pope Francis asked for forgiveness for crimes committed by the Catholic Church during the colonization of the Americas at a summit in Bolivia, home to one of the region’s largest indigenous populations.

“I say with sorrow that the church has committed many serious sins against the indigenous peoples of America in the name of God,” Francis said to applause at a summit of popular movements in Santa Cruz, Bolivia on Thursday. “I humbly ask for forgiveness not only for the offenses of the church itself, but also for the crimes against native peoples during the so-called conquest of America.”

Click here to read full story on Bloomberg News.

07 July 2015

Pope Seeks Unity in Latin America Plagued by Political Strife

By Nathan Gill
(Bloomberg) -- Pope Francis, the first Latin American to lead the Catholic Church, called for unity and greater respect for diversity Tuesday during a mass in Quito, where thousands camped overnight in the rain to hear the pontiff speak.

“There was no shortage of conviction or strength in that cry for freedom which arose a little more than two hundred years ago,” Francis told about 1 million people gathered in Quito’s Bicentennial Park. “But history tells us that it only made headway once personal differences were set aside, together with the desire for power and the inability to appreciate other movements of liberation.”

Click here to read the full story on Bloomberg News.

05 July 2015

Pope Francis Brings Focus on Poor to South America

By Nathan Gill and John Follain
July 5, 2015 (Bloomberg) -- Pope Francis arrived in Ecuador Sunday, starting a nine-day visit to South America in which he’s expected to focus on the poor and challenge policies on oil drilling that damage the environment.

“In the words of the gospel, we can find the keys that will permit us to face current challenges, appreciate differences, and promote dialogue and participation without exclusions,” Francis said in seven minutes of remarks on a windswept tarmac after landing in Ecuador’s capital, Quito.

Click here to read the full story on Bloomberg News.

04 July 2015

Pope’s South American Homecoming to Spotlight Poor, Environment

By John Follain and Nathan Gill
July 4, 2015 (Bloomberg) -- Pope Francis will fly to South America on Sunday for a nine-day visit in which he is likely to focus on the poor and may challenge policies on oil and gas drilling.

The first Latin American pope, who was elected in March 2013 and called for “a poor Church for the poor,” will visit three of the region’s poorest countries, Ecuador, Bolivia and Paraguay.

During the visit, the Argentine Francis, 78, will meet prisoners, slum-dwellers and grass-roots groups representing indigenous peoples and landless peasants. He will deliver 13 speeches and six homilies to crowds likely to run into the hundreds of thousands.

Francis’s message is for God’s “children most in need, to the elderly, the sick, the imprisoned, the poor, to those who are victims of this throw-away culture,” he said in a statement on the eve of the trip.

Click here to read the full story on Bloomberg News

30 June 2015

Venezuela Bonds Trapped by Oil’s New Normal as Relief Rally Ends

By Nathan Gill
(Bloomberg) -- This year’s climb in crude prices, however slight, brought relief to Venezuelan and Ecuadorean bondholders after last year’s crash decimated the oil producers’ revenue and prompted concern they were running short of cash.

Now, the pessimism is back.

While New York oil futures have surged 36 percent from a six-year low in March, they’re still down 45 percent from their 2014 high and probably will stay around there for the rest of the year, based on analyst forecasts compiled by Bloomberg. That means the Andean countries could struggle to find enough cash to continue meeting debt payments and prop up popular social programs that help maintain stability.

“Things are going to get much more difficult if oil prices stay where they are,” Sarah Glendon, the head of sovereign research at Gramercy Funds Management LLC in Greenwich, Connecticut, said in a telephone interview Monday. “High oil prices masked the challenges that both governments had, allowing them to delay very important reforms that needed to take place.”

Venezuela’s Information Ministry and the press offices of Ecuador’s Economic Policy Ministry and Finance Ministry didn’t respond to e-mails seeking comment about the performance of the nations’ debt.

Best Returns

Ecuador’s bonds have returned 7 percent on average since the start of the year, the most among dollar-denominated notes from major Latin American economies, data compiled by Bloomberg show. Venezuela’s gained 6.81 percent.

By contrast, emerging-market securities on average rose just 0.5 percent.

The bonds’ outperformance came as oil prices surged to about $59 a barrel from a six-year low of $43.46 in March.

Among other measures, the two countries also said they obtained at least $9 billion in combined 2015 financing commitments from China, enough to help defy for now the most dire warnings that they were running short of cash.

Even so, Venezuela and Ecuador, Latin America’s only two OPEC members, have burned through foreign reserves. They also enacted policy measures that could choke off economic growth.

In Venezuela, where credit-default swaps traders have priced in a 95 percent chance of default over the next five years, measures to offset the impact of falling oil prices included the creation of the country’s fifth parallel currency market in 12 years to boost the supply of dollars, squeezing its U.S. oil-refining unit for $1.5 billion and dismantling the late President Hugo Chavez’s pet program of providing cheap oil to allies.

Spending Cut

Ecuador’s government cut about 4 percent of its planned 2015 spending, lined up $4.2 billion in credit agreements from China for this year and tapped credit markets for $750 million in March at the highest yield for any sovereign five-year bond since 2002. The government reopened the issuance of its 10.5 percent bonds due in 2020 in May, selling an additional $750 million at a lower 8.5 percent.
As oil recovered, bond yields for the two Latin American countries narrowed relative to comparable U.S. Treasuries.

The extra yield, or spread, on Venezuela’s bonds instead of U.S. Treasuries narrowed to 26.95 percentage points as of 12:07 p.m. in New York from more than 34 in January, according to JPMorgan Chase & Co. For Ecuador, the spread fell to 8.22 percentage points from more than 10 in January.

Ecuador and Venezuela bonds “were penalized harshly at the end of last year because of oil prices,” Santiago Mosquera, vice president of Quito-based brokerage Analytica Securities, said in a telephone interview. “From here out, I don’t see any possibility for a reduction in spreads in Ecuador, except if oil rises or the political outlook somehow changes magically.”

24 June 2015

Ecuador Cocoa Forecast Cut to 230,000 Tons After Rains Hit Crops

By Nathan Gill
(Bloomberg) -- Ecuador, the world’s biggest grower of flavored beans used in fine chocolate, will probably lose about 15 percent of this year’s cocoa crop after heavy rains hurt farms in the Andean nation’s coastal region, the National Cocoa Exporters Association said.

Anecacao, as the association is known, reduced its 2015 forecast to about 230,000 metric tons from a January estimate of 260,000 tons to 280,000 tons, Ivan Ontaneda, the group’s president, said Wednesday by telephone from Guayaquil. Heavier-than-normal rains since April have hurt the mid-year harvest and are damaging flowers on trees expected to bear fruit beginning in September, he said.

The bad weather in Ecuador comes on top of problems in West Africa, where floods in Ivory Coast and Ghana, the world’s top cocoa producers, are blocking roads and leaving cocoa pods rotting on the trees.

“We’re worried about the weather,” said Ontaneda, who’s also the chief executive officer of Guayaquil-based cocoa exporter Eco-Kakao SA. “Right now, because of the rains that we’ve had, a lot of the flowers on the cocoa trees have fallen, which means that the main crop will also be reduced by an important amount.”

About 30 percent to 40 percent of crops in Ecuador’s coastal province of El Oro are affected, Ontaneda said. In Los Rios province, about 15 percent to 20 percent of cocoa trees are damaged and in the northern province of Esmeraldas as much as 20 percent of the crop has been affected, he said. Ecuador’s main harvest begins in September and continues through March.

El Nino

Growers, which produced about 245,000 tons of the beans last year, are still monitoring the El Nino weather pattern and are preparing for a moderate to severe impact, Ontaneda said. Ecuador exports about 95 percent of the cocoa it produces, he said.

El Nino has the potential to affect weather and harvests around the globe by baking parts of Asia, dumping rain across South America and bringing cooler summers to North America.
Sea-surface temperature indexes for the central and eastern tropical Pacific are more than 1 degree Celsius above average for a sixth week, according to Australia’s Bureau of Meteorology. Models showed the central Pacific will warm further over the coming months, according to the bureau.

16 June 2015

Correa’s Back-Track on Tax Bills Fails to Halt Ecuador Protests

By Nathan Gill
(Bloomberg) -- Ecuador President Rafael Correa’s attempt to defuse nationwide protests by back-tracking on two controversial tax proposals failed to prevent opposition supporters marching for a ninth straight day Tuesday.

Protesters gathered in the capital city, Quito, less than 24 hours after Correa called for calm and announced he would delay plans to raise taxes on inheritances and real estate profits to avoid violence.

Correa “temporarily” withdrew the plans just hours after saying he wouldn’t “cede a millimeter” to protesters’ demands. It’s probably too little to stop the protests from growing in the coming days and months as opposition groups seek to boost support ahead of presidential elections in early 2017, said Michel Levi, coordinator of the Andean Center of International Studies at the Universidad Andina in Quito.

“I don’t think the president’s announcement will calm spirits down completely,” Levi said Tuesday in a telephone interview from Quito. “Rather, there will be movements that become much more active as they position themselves for the elections.”

Support for Correa, one of Latin America’s most popular presidents, fell 13 percentage points to 55 percent in June, according to a report published Tuesday by Quito-based research organization Quantum Informe. The report didn’t give survey details.

02 June 2015

JPMorgan Says Not to Worry as Ecuador Promotes Digital Currency

By Nathan Gill
(Bloomberg) -- Ecuador’s home-grown digital currency is nothing to fear. At least that’s the conclusion of analysts from JPMorgan Chase & Co. to Credit Suisse Group AG and Nomura Securities International Inc.

The country’s bonds fell last week after the government ordered banks to start accepting a new electronic tender it created last year. Previously, officials had said the system would be voluntary. Investors are concerned that President Rafael Correa plans to use the dinero electronico to wean the nation off its official currency, the U.S. dollar, and eventually start creating virtual money to plug a budget gap.

The bond selloff, and the concerns, were overblown, the analysts say. Javier Kulesz, a managing director at Nomura, said he isn’t worried about a sudden end of dollarization because the government has said it will keep liquid reserves to back the digital currency. Oil prices will be more important in determining how the country’s dollar bonds perform than the virtual tender, according to Acadian Asset Management LLC portfolio manager Holger Siebrecht.

“As far as I’m concerned, this is noise,” said Boston-based Siebrecht, who helps manage about $350 million of emerging market debt, including Ecuadorean bonds. “We see these things from time to time in emerging markets, that a news item comes across and there’s some short-term, knee-jerk reaction.”

Always Voluntary

The extra yield investors demand to own Ecuadorean bonds instead of Treasuries, a measure of risk perception in credit markets, rose the most in two months last week, jumping 0.52 percentage point to 7.35 points, data compiled by JPMorgan show. The so-called spread trails only Ukraine, Venezuela, Belarus and Belize among developing countries worldwide.

The new measures require banks to offer services tied to the electronic coin, giving lenders with assets greater than $1 billion 120 days to fulfill the requirement, while smaller banks will get as long as a year, according to a resolution published in the nation’s official register May 25.

The rule change will give users more opportunities to use the digital currency, which will continue to be completely voluntary for private citizens, the central bank’s press office said in response to questions from Bloomberg.

“What changes is that those citizens who voluntarily have decided to use the electronic money will be able to do it at all of the banks in the financial system,” the monetary authority said.

Oil Prices

Concern about the OPEC nation’s economy has grown over the last year as prices for its crude oil, which made up about half of Ecuador’s 2014 export revenue, slumped to an almost six-year low in January. While Ecuador’s Oriente oil prices have climbed 49 percent to $57.00 a barrel since then, the government is still on track to post the biggest budget deficit on record.

So investors in Ecuador should be focused on the outlook for crude and the government’s ability to fund itself, not the use of an e-currency, Nomura’s Kulesz said in a note May 28.

“There are lots of things to worry about in Ecuador, but this is not it,” Kulesz wrote.
Still, last week’s banking rules revived questions about how the government plans to use the new currency in the future and officials’ long-term support of dollarization, according to Sarah Glendon, an economist at Gramercy Funds Management LLC.

‘Contingency Plan’

“I have never gotten a logical explanation from the government as to why the central bank is the intermediary for this e-money, whereas in other countries, it is commercial banks,” Glendon said from Greenwich, Connecticut. “I view the e-money as a contingency plan that is setting the stage for eventual de-dollarization. Not immediate, but eventual.”

Correa, who’s likened dollarization to boxing with one hand, is a vocal critic of Ecuador’s use of the greenback. Still, he and his cabinet members have repeatedly said they have no plans to abandon the dollar.

“We think the authorities are strongly committed to the politically popular dollarization regime, at least through the 2017 election cycle,” Benjamin Ramsey, an economist at JPMorgan in New York, said in a May 29 research note.

Juan Lorenzo Maldonado, an economist at Credit Suisse in New York, said in a note to clients it doesn’t seem there are immediate plans by Ecuador to use the electronic currency to make payments to suppliers or employees.

“Officials completely discarded any intentions of doing so, and we take their word at face value,” he said.

28 May 2015

Ecuador Requiring Banks to Offer Electronic Currency Services

By Nathan Gill
(Bloomberg) -- Ecuador, which uses the U.S. dollar as its official currency, will require banks to offer services tied to a government-created electronic coin.

Lenders with assets greater than $1 billion as of Dec. 31 have 120 days to fulfill the requirement, while smaller banks will get as long as a year, according to a resolution published on the Monetary Council’s website.

The new rule comes less than a year after the government asked Congress to approve the creation of the new currency with the condition that its use be voluntary. While President Rafael Correa has criticized the nation’s use of the greenback because it hampers officials’ ability to offset a drop in the OPEC nation’s crude exports with monetary stimulus, he has said the government has no plans to switch away from the dollar.

“The new institutional vision of the central bank determines as a strategic objective financial inclusion and the modernization of payment systems,” the council said in the resolution, which was approved April 16 and published in the official register May 25. Electronic currency “seeks efficiency in payment systems to promote and contribute to the economic stability of the country.”

06 May 2015

South America’s Commodity Rout Spurs Public Spending on Housing

By Nathan Gill
(Bloomberg) -- Enrique Perez, who’s been building homes for most of his life in Ecuador, is finally going to make one for himself.

Perez is an unlikely beneficiary of the plunge in crude prices. That prompted Ecuador, an OPEC nation, to offer mortgage subsidies to people like Perez, a construction worker.

Ecuador joins Chile, Colombia and Peru in boosting spending on housing -- a politically popular move -- to revive their economies bruised by the worst commodities rout in four years. The Latin American nations are rolling out everything from changes in tax and mortgage laws to increases in infrastructure spending and subsidies for builders.

“The Ecuador government’s idea was to generate a massive housing program focused on middle- and lower-income levels to help boost the economy,” Mario Burbano de Lara, strategic director of Ecuador mortgage lender Mutualista Pichincha, said in an interview. “They saw a fiscally difficult year coming and wanted a new motor for the economy that could create jobs.”
‘Great Interest’

The subsidies, set to start by June, will cut mortgage rates from private banks in half for homes costing up to $70,000, and boost home lending by as much as $420 million this year, according to Economic Policy Minister Patricio Rivera. The total cost for homebuyers could be trimmed by about a third, he said.

The government is using a law approved by Congress last year to force Ecuador’s eight biggest banks, including publicly-traded Banco Pichincha CA and Banco de Guayaquil SA, to provide about $86 million in mortgages in the second quarter, according to the government. The lending requirements will be reviewed quarterly and may change.

The banks didn’t respond to requests for comment.

Banco del Instituto Ecuatoriano de Seguridad Social, the banking arm of Ecuador’s state-run pension fund known as BIESS, will also lower its interest rates to 6 percent for new homes costing up to $70,000. That’s down from an average of 8.6 percent, according to the bank.

BIESS has seen “great interest” in the new lending program, the bank’s press office said. The agency has received 457 applications since April 11 and expects to disburse funds to clients within 89 days of receiving the loan application, it said.

Andean Stimulus

In Chile, where laws require the government to save windfall profits from its copper exports, President Michelle Bachelet plans to spend an extra $1.2 billion on an affordable-housing program this year. Prices for copper, Chile’s biggest export, have fallen about 10 percent since their peak last year in July.

Colombia’s President Juan Manuel Santos said in February that his government planned to “neutralize” the negative effects from the fall in oil prices by providing support for construction and housing. The government, which depends on revenue from oil -- the nation’s biggest export -- will build 400,000 homes for low-income families through 2018.

Officials are also seeking changes to laws to allow financial institutions to issue mortgage-backed bonds linked to loans in pesos to boost lending.

Spent Savings

Last year, Peru, the world’s third-biggest copper producer, announced a series of tax changes to help accelerate construction of houses and buildings as well as three emergency spending plans. The government said in January it would help finance $7 billion of projects to offset a slump in mining and a sagging economy.

Unlike its Andean neighbors, Ecuador has already spent its savings from the oil boom and has little cash to help pay for housing. Under Ecuador’s new law, which was passed at the urging of President Rafael Correa, the government plans to tap about $185 million of private banks’ deposit reserves held by the central bank to fund the program.

“The interesting part of this program is that the government wanted to use the financial system’s own reserves to fund the subsidy,” Mutualista Pichincha’s Burbano de Lara said. “They didn’t want to use any state funds for this.”

The use of reserves shouldn’t put the financial system at risk because the amount is a fraction of the nation’s total deposits of $26.8 billion, said Vicente Albornoz, dean of the Universidad de las Americas business school in Quito.

Worst Bond

With the country’s oil price averaging about 40 percent less than the $79.70-a-barrel forecast in this year’s budget, Correa, a self-described revolutionary socialist, has had to cut spending for the first time since taking office in 2007. He pushed controversial legislation through Congress last month eliminating a 40 percent subsidy for state pensions.

Ecuador’s economy, South America’s seventh-biggest, expanded in 2014 at its slowest pace in four years and is on track to lose more steam this year, according to the government.

In a sign of how desperate the country is to prop up spending, Ecuador in March sold the world’s most expensive bond in 13 years, with an interest rate of 10.5 percent. Six years ago, Ecuador defaulted on the nation’s 10-percent notes.

“Ecuador is facing a perfect storm right now in that this has been an economy that’s highly dependent on public spending for stimulus and growth,” Eurasia Group analyst Risa Grais-Targow said. “They’re knocking on every door and exploring every option that they have.”

Ecuador’s economy, finance and housing ministries didn’t respond to requests for comment.

‘Perfect Storm’

The housing program should offset an expected slowdown for builders and mortgage lenders, according to Mutualista Pichincha’s Burbano de Lara. He said the subsidies will likely keep mortgage lending at the bank on course to reach about $100 million this year, preventing what otherwise would be about a $20 million slide.

For Perez, 51, the subsidy means he can finally move his wife and four kids out of their rented two-bedroom apartment.

“Before, we were thinking we could afford a one-bedroom apartment,” Perez said. “Now, with these new terms, we’re going to see if we can do something better with a house.”

29 April 2015

China’s Andes Said to Join Repsol in Ecuador Oil Drilling Freeze

By Nathan Gill and David Wethe 
(Bloomberg) -- Andes Petroleum Ecuador Ltd. and Repsol SA, Ecuador’s two biggest foreign oil producers, are shelving plans to drill exploratory wells amid a payment dispute with the OPEC nation’s government, according to two people with direct knowledge of the matter. 

Andes, owned by China National Petroleum Corp. and China Petrochemical Corp., and Madrid-based Repsol have notified Halliburton Co. that they plan to freeze their drilling contracts this year, said the two people, who asked not to be named because the matter hasn’t been made public. Houston-based Halliburton provides services to both companies, which pump oil for Ecuador’s government for a per-barrel fee. 

A third person with knowledge of Repsol’s plans, who isn’t authorized to speak about the matter publicly, said the Spanish company has begun notifying all of its service providers in Ecuador, including Halliburton, that it wants to reach new agreements after global oil prices fell. Current output isn’t affected by the exploration delays, one of the people said. 

Repsol spokesman Kristian Rix said the company was operating normally in Ecuador and declined to comment on individual contracts. 

Susie McMichael, a spokeswoman at Halliburton in Houston, and Andes Petroleum spokesman Edgar Vasquez declined to comment when asked about the contracts. The press office of Ecuador’s oil ministry didn’t provide a comment. 

The drilling delay is another setback for Ecuador, where a 45 percent plunge in the price of its Oriente crude has led President Rafael Correa to cut spending and the budget of state producer Petroamazonas. The government has fallen behind on payments of fees to oil operators as the drop in prices for crude, which accounts for about a quarter of state revenue, saps liquidity, according to two of the people.

Payment Delays

A global rout that has seen oil prices fall about 50 percent since June has led well operators to seek cost concessions of more than 30 percent for oil services, according to investment bank Evercore ISI. As lower oil prices have forced oil producers to cut back on exploration, drillers like Halliburton have fired workers to trim costs. Over the past two quarters, Halliburton, the world’s second-biggest provider of oilfield services, has cut a total of 9,000 workers, or more than 10 percent of its global workforce as the price collapse forced drillers to cut back, interim Chief Financial Officer Christian Garcia said April 20. 

On April 9, Petroamazonas said it was in talks with suppliers and contractors to delay payments and said it was seeking external financing to help maintain oil-field investments. Output will fall by about 3 percent this year because of the cuts, the company said. Petroamazonas’s press office in Quito didn’t reply to telephone messages seeking comment.

New Deal

Andes and an affiliated company operate the Tarapoa, Block 14 and Block 17 concessions in Ecuador’s eastern Amazon region. Repsol operates the Block 16 and Tivacuno concessions. The government pays Andes $35 a barrel for oil pumped at Tarapoa and $41 a barrel for Blocks 14 and 17, according to oil ministry data. 

Repsol gets $35.95 a barrel from the Block 16 field and $27.25 from Tivacuno, the data show. In November 2013, Repsol signed a new deal with Ecuador’s government to expand its operations in Block 16 in a bid to get more use out of existing infrastructure and investments. As part of the agreement, Repsol agreed to drill two new wells in what is known as the Wati field, with the possibility of an additional five if exploration was successful. 

Repsol will now halt drilling after the second well is finished next month and no longer plans to perforate the additional five this year, one of the people said.


14 April 2015

Ecuador Approves New Labor Law With Changes to Public Pensions

By Nathan Gill
(Bloomberg) -- Ecuador’s congress approved changes to the Andean nation’s labor laws on Tuesday, including the removal of a government subsidy meant to cover almost half of state pensioners’ monthly payments.

Lawmakers approved the measure proposed by President Rafael Correa in a 91-to-29 vote, while government supporters and political opposition groups looked on from a packed balcony at congress in Quito. The new law replaces the subsidies with a general promise of future state funding for pensions, if needed.

Correa and members of his Alianza Pais political party have argued that the government didn’t need to subsidize the social security institute, known as IESS, because Ecuador has a surplus of young workers whose mandatory payroll contributions provide enough funding to cover current expenses. By eliminating the subsidy, the government will save about $1 billion a year, Correa said in a March 28 speech.

As the government was previously paying the subsidy with bonds, the measure will also relieve pressure on the nation’s debt ceiling as eliminating the provision removes the payments from the nation’s public debt forecasts. Ecuador’s laws limit total public debt to 40 percent of gross domestic product. It’s currently at 29 percent of GDP as of February, according to the most recent data from the Finance Ministry.

The new law also grants “housewives” subsidized social security benefits and bans firing pregnant women. It creates an umbrella labor union to organize workers across the nation’s different industries and reduces fixed-term labor contracts in favor of indefinite employment accords.

01 April 2015

GMO Settles With Ecuador Over Bonds That Defaulted in 2009

By Katia Porzecanski and Nathan Gill
(Bloomberg) -- Grantham, Mayo, Van Otterloo LLC, a Boston-based money manager, dismissed its lawsuit against Ecuador over debt the nation defaulted on six years ago.

The parties agreed to dismiss the suit filed in December in Manhattan federal court, agreeing that each side would pay its own costs and that the complaint wouldn’t be refiled, without disclosing other terms, according to a March 23 court filing.

GMO said in its complaint that it owned Ecuador sovereign notes due 2030 with a face value of $15.9 million. President Rafael Correa defaulted on $3.2 billion in bonds in late 2008 and early 2009, declaring the debts illegal and illegitimate. The government then repurchased most of the securities at about 35 cents on the dollar.

The government told potential investors in new notes sold on March 19 that the lawsuit represented a “risk of disruption to the offering,” according to a prospectus obtained by Bloomberg News.
Robert G. Jones, a lawyer for GMO, declined to comment on the settlement. Andrew Z. Schwartz, who represents Ecuador, didn’t immediately return a voicemail message.

GMO directed questions to Hewes Communications Inc., an external media-relations service provider. The company declined to comment.

Ecuador’s Finance Ministry didn’t immediately reply to telephone messages seeking comment.

The case is GMO Trust v. The Republic of Ecuador, 14-cv-09844, U.S. District Court, Southern District of New York (Manhattan).

GMO Settles With Ecuador Over Bonds That Defaulted Six Years Ago

By Katia Porzecanski and Nathan Gill
(Bloomberg) -- Grantham, Mayo, Van Otterloo LLC, a Boston-based money manager, dismissed its lawsuit against Ecuador over debt the nation defaulted on six years ago.

The parties agreed to dismiss the suit filed in December in Manhattan federal court, agreeing that each side would pay its own costs and that the complaint wouldn’t be refiled, without disclosing other terms, according to a March 23 court filing.

GMO said in its complaint that it owned Ecuador sovereign notes due 2030 with a face value of $15.9 million. President Rafael Correa defaulted on $3.2 billion in bonds in late 2008 and early 2009, declaring the debts illegal and illegitimate. The government then repurchased most of the securities at about 35 cents on the dollar.

The government told potential investors in new notes sold on March 19 that the lawsuit represented a “risk of disruption to the offering,” according to a prospectus obtained by Bloomberg News.

Robert G. Jones, a lawyer for GMO, declined to comment on the settlement. Andrew Z. Schwartz, who represents Ecuador, didn’t immediately return a voicemail message.

GMO directed questions to Hewes Communications Inc., an external media-relations service provider. The company declined to comment. Ecuador’s Finance Ministry didn’t immediately reply to telephone messages seeking comment.

The case is GMO Trust v. The Republic of Ecuador, 14-cv-09844, U.S. District Court, Southern District of New York (Manhattan).

Link: http://bloom.bg/1FigDuG

31 March 2015

World’s Costliest Bond Sale in Decade Shows Ecuador Cash Crunch

By Katia Porzecanski and Nathan Gill
(Bloomberg) -- Six years ago, Ecuador President Rafael Correa’s government denounced the 10 percent in annual interest the country paid on its bonds as “usury.”

So when the 51-year-old former economics professor was willing to pay 10.5 percent in a sale of notes this month, it raised speculation the OPEC nation may be running short of cash after oil prices collapsed.

Before the March 19 sale, Ecuador told potential buyers it wanted to pay less than 8 percent to borrow at least $1 billion for as long as seven years, two people with knowledge of the offering said. Instead, the Andean nation got just $750 million for five years at yields that were more than two percentage points higher.

The sale “indicates that they are running into trouble,” Sarah Glendon, an economist at Gramercy Funds Management LLC, said by telephone from Greenwich, Connecticut.

The more than 50 percent plummet in the nation’s oil prices from their June peak last year caused bond investors to demand more compensation to finance Ecuador’s widening budget shortfall, less than a year after the country borrowed $2 billion for a decade at lower rates.

Even after a round of spending cuts, the government, which gets about a quarter of its revenue from oil, has a record $10.5 billion of financing needs this year. That’s compelled Correa to court banks, international investors, companies and foreign governments to close the deficit.

Yield Curve

In the latest sale, the annual interest that Ecuador agreed to pay to issue five-year bonds was the highest of any comparable dollar-denominated security since an offering by Turkey in 2002, according to data compiled by Bloomberg.

The yield was also higher than on Ecuador’s bonds due in 2024, which is unusual because shorter-dated debt usually carries lower borrowing costs.

Yields on the 2024 securities have jumped 0.95 percentage point since the country started meeting with investors to discuss the sale of the new notes to 9.86 percent. During the same period, average yields for developing nations fell, according to indexes from JPMorgan Chase & Co.

The Finance Ministry and Economic Policy Ministry didn’t respond to telephone messages or e-mails seeking further comment on the bond sale.

On the night before this month’s sale, Economic Policy Minister Patricio Rivera told reporters in Quito that Ecuador would opt for cheaper funding sources from other governments until bond market conditions were better.

Energy Prices

“Then they came, out of the blue, with a five-year at 10.5 percent, saying pricing would not tighten and implying that they would take as much as the market was willing to give them,” said Marco Santamaria, a money manager at AllianceBernstein LP in New York. He declined to comment on whether he bought the bonds.

Finance Minister Fausto Herrera told reporters after the sale that the government didn’t get the “best conditions.” Energy prices fell during the government’s roadshow with investors earlier this month, forcing Ecuador to accept worse terms than it wanted, Herrera said.

Yields on the notes due 2020 were unchanged at 10.41 percent as of 3:06 p.m. in New York.
Correa said Saturday that the economy was strong and that the government was ready if oil prices kept falling.

‘Extreme Cases’

“We’re prepared for extreme cases, even if oil prices fall to $20 a barrel,” Correa said in his weekly speech to the nation. “We know how to handle these difficult times.”

Before Ecuador defaulted on about $3.2 billion of foreign bonds in 2008 and 2009, a government-sponsored commission formed by Correa concluded that much of the debt taken out by previous governments was illegal, in part because of the high interest rates charged.

The fact that Ecuador was willing to issue debt with such high interest rates is “very unusual,” said Siobhan Morden, the head of Latin America fixed-income strategy at Jefferies Group LLC in New York.

“This deal made Ecuador look desperate,” Morden said.

28 March 2015

Ecuador GDP Growth Slowed in 2014 for Third Year on Oil Decline

By Nathan Gill
     (Bloomberg) -- The rate of growth in Ecuador, South America’s seventh biggest economy, slowed for a third year in 2014 as falling crude oil prices and a refinery shutdown offset gains from higher fishing and electricity output.

Gross domestic product rose 3.8 percent in 2014 from a year earlier, less than the government’s 4 percent forecast, the central bank said Saturday in a statement on its website. Growth was the slowest since 2010’s 3.5 percent. In the fourth quarter, GDP rose by 0.5 percent from the previous three months and 3.5 percent from a year earlier.

Ecuador, an OPEC nation that relies on oil for about half its export revenue, saw prices for its Oriente and Napo crudes drop by about 50 percent by year-end from a June peak of $98.90 a barrel. That cut funds the government uses to finance public works projects that generate jobs and economic growth.

Maintenance on Ecuador’s biggest oil refinery starting in July cut local fuel output by 48 percent last year and forced the government to spend more on subsidized imports to meet demand, the central bank report showed.

The Andean nation, which uses the U.S. dollar as its official currency, was also hurt by the stronger greenback, which made its other exports more expensive, President Rafael Correa said Saturday in his weekly speech to the nation.

Ecuador’s non-oil industries, like agriculture, shrimp farming and electrical output, helped underpin growth, he said.

With oil prices hovering close to six-year lows, economists expect Ecuador’s growth to slow further this year, to 2.2 percent, according to the median forecast of six analysts surveyed by Bloomberg News from March 13 to March 18.

Finance Minister Fausto Herrera said Monday that the government expects growth of less than 3.8 percent this year, down from a November forecast of 4.1 percent.


Link: http://bloom.bg/1Np52Ml

27 March 2015

Ecuador Discloses Loans From Wall Street, China as Oil Sinks

By Nathan Gill
(Bloomberg) -- Ecuador got $924 million in previously undisclosed loans from Deutsche Bank AG and other lenders, showing the extent of President Rafael Correa’s effort to line up a record amount of financing as oil prices plunge.

The country took $181 million in two separate loans from units of Deutsche Bank and obtained $125 million from the European Investment Bank, according to a prospectus prepared before the government sold bonds this month that was reviewed by Bloomberg News. Ecuador also got financing from Bank of China Ltd. and a Chinese state oil company, the document shows.

The 50 percent drop in oil prices over the past 12 months has pushed the Andean nation’s financing needs to a record $10.5 billion this year, prompting Correa to court banks, international debt investors and foreign governments to make ends meet. Last week the country sold $750 million of bonds with a 10.5 percent interest rate, the highest for any major dollar-bond sale this year.

Ecuador Finance Minister Fausto Herrera was out of the country and unable to respond to questions, and no one else was available to comment, according to the ministry’s press office.

Credit Facility

The Economic Policy Ministry didn’t respond to telephone messages and e-mailed requests for comment on the loans and the government’s 2015 financing needs. Deutsche Bank declined to comment. The European Investment Bank’s press office didn’t reply to an e-mailed request for comment, and calls to China’s embassy in Quito went unanswered.

Included in the newly disclosed financing was a $218 million credit facility agreement with the Bank of China in November. The Deutsche Bank loans were in November and February. The European Investment Bank loan came in December.

The government also said it received $2.4 billion in loans from Unipec Asia Co., a unit of China Petroleum & Chemical Corp., in May 2014. Last year, Ecuador had put the size of the loans at $2 billion.

Yields on Ecuador’s benchmark dollar bonds sold last week have dropped 0.13 percentage point since trading began to 10.37 percent as of 12:12 p.m. in New York. That compares with the 9.77 percent that the nation’s longer-maturity debt due in 2024 yields, data compiled by Bloomberg show.

Oil Decline

The extra loans still aren’t enough to offset the decline in oil prices and a slowdown in Chinese lending, Edward Glossop, an emerging-market economist at Capital Economics in London, said in a telephone interview. The government will need more money in the second half of the year if it wants to maintain current spending levels, he said.

A promised $1.5 billion loan from China that was expected to be disbursed in February has already been delayed twice and is now expected to be disbursed in April, Herrera said March 23. The loan amount has risen and is now expected to be $2 billion, he said.

“These kind of piecemeal arrangements of financing from here and there are only going to take them so far,” Glossop said. “It’s not going to change the fact that they can’t sustain this level of spending.”

19 March 2015

Peru Top Cement Maker Unacem Says Exports to Offset Mining Slump

By Nathan Gill
(Bloomberg) -- Union Andina de Cementos SAA, Peru’s biggest cement supplier, expects growth in exports will help offset weakening demand from local miners.

Overseas sales of clinker, an ingredient in cement production, will surge 18 percent to about 500,000 metric tons this year, Ricardo Rizo Patron, chairman of the company, said Wednesday in an interview in Quito. Demand for its construction materials in Peru will probably rise this year and next, he said.

“The increase in exports is very interesting because it provides us with dollars,” Rizo Patron said. “I think 2015 will be a better year than 2014, and 2016 will be even better.”

The Lima-based company, which also operates in Chile, Colombia and the U.S., also expects construction of housing and large infrastructure projects in Peru to offset a slowdown in demand from the nation’s mining industry, Rizo Patron said. The company isn’t planning any new debt or equity sales this year and won’t change its investment plans or curb output, he said.

Ecuador Said to Sell $750 Million of Five-Year Bonds at 10.5%

By Katia Porzecanski and Nathan Gill
(Bloomberg) -- Ecuador sold $750 million of five-year bonds overseas to meet its financing needs amid a plunge in the price of crude oil.

The country sold the securities to yield 10.5 percent, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified. Citigroup Inc. is managing the sale, the person said.

Ecuador, facing a funding shortfall of more than $10 billion this year, is returning to bond markets for the second time since defaulting on $3.2 billion of bonds six years ago. Borrowing costs for the nation have jumped more than a percentage point since officials began meeting with investors March 9 as oil, the nation’s biggest export, extended declines.

“The fact that Ecuador is going for it probably shows that the nation will do what it must to fund its financing needs,” Juan Lorenzo Maldonado, a Latin America economist at Credit Suisse Group AG, said by telephone from New York.

The nation’s $2 billion of dollar bonds due 2024 dropped 2.01 cents on the dollar to 86.67 cents at 12:54 p.m. in New York, pushing yields to 10.21 percent. Oil slipped 3.6 percent to $43.06 a barrel, the lowest since March 2009.

Today’s bond sale is temporarily weighing on prices for the country’s longer-maturity bonds, according to Bryan Carter, who helps manage about $360 million of emerging-market debt at Acadian Asset Management.

Cheaper Financing

“It’s causing a readjustment in the longer bonds this week, but that largely reflects the premium that comes with pushing out a shorter bond in a limited timeframe and should reverse,” Carter said in an interview from Boston. “It’s important for Ecuador to shore up its financing needs and positive that they can do it via the market.”

Ecuador decided to not sell more than $1 billion in bonds because the nation can obtain cheaper financing from other governments, Economic Policy Minister Patricio Rivera told reporters in Quito on Wednesday.

“There are other bilateral options that, in financial terms, are more interesting,” Rivera said. The government needs to be “prudent” with its funding options, he said.

While Ecuador signed $7.5 billion in loan deals with China in January, the nation hasn’t yet received any disbursements, according to Rivera.

The delay in funding “may be forcing Ecuador to resort to the market right now instead of waiting until conditions are better,” Credit Suisse’s Maldonado said.

17 March 2015

Monsters of Bond Market Now Correa Go-To as China Is Not Enough

By Nathan Gill
(Bloomberg) -- When President Rafael Correa defaulted on most of Ecuador’s overseas debt in 2008, he disparaged bondholders as “true monsters.”

Now, he’s increasingly dependent on their goodwill.

Ecuador hired Citigroup Inc. to arrange meetings with investors to gauge demand for what would be the nation’s second international bond sale in the past year, according to the Finance Ministry.
After relying predominantly on China for foreign funding in the years following the default, Correa is turning more often to bond markets as the collapse in oil prices pushes the Andean nation’s financing needs to a record $10.5 billion this year. The plan comes after Correa, a self-described socialist, cut government spending for the first time since he took office in 2007, helping to win over investors and drive down Ecuador’s borrowing costs by the most in Latin America.

“The composition of their financing is still worrisome, so to the degree that they can move to more transparent forms of financing, that’s also market positive,” Bryan Carter, who helps manage about $360 million of emerging-market debt at Acadian Asset Management, said by telephone from Boston. “In Ecuador’s favor, the market has a relatively short memory.”

Ecuador will look to sell dollar-denominated bonds with a maturity of less than 10 years after the investor talks if market conditions allow, said two people with knowledge of the plans, who asked not to be identified because the information is private.

Loan Delayed

Finance Minister Fausto Herrera is traveling and unable to comment, the ministry’s press office said when asked to comment on the plans to sell debt. The Economic Policy Ministry didn’t respond to telephone or e-mail messages seeking more information on the bond sale.

In a January interview with Bloomberg News, Herrera said this year’s financing needs were completely covered.

“We can finish the year perfectly with the financing we have already signed with China, multilaterals as well as the social security agency,” he said Jan. 13.

On March 5, the Finance Ministry said that a $1.5 billion loan from China expected in February was delayed because of the Asian nation’s New Year festivities. Ecuador now expects to receive the loan this month, the ministry said, without providing more details.

Correa, a 51-year-old former economics professor, said in January that he lined up more than $7.5 billion in financing from China, whose more than $13 billion of loans since 2009 have made the country Ecuador’s biggest foreign creditor.

Borrowing Costs

Yields on Ecuador’s benchmark dollar bonds due in 2024 have dropped 0.34 percentage point this year to 9.88 percent as of 12:26 p.m. in New York. That compares with an average increase in borrowing costs for emerging-market countries of 0.15 percentage point, according to JPMorgan Chase & Co.

“Things have stabilized, and they see that there is a window of opportunity now,” said Santiago Mosquera, vice president of Quito-based brokerage Analytica Securities.

Ecuador, which gets about a quarter of its revenue from oil exports, will have to offer an interest rate of about 8 percent for a bond with a maturity of less than 10 years, Acadian’s Carter said.
The price of the nation’s Oriente and Napo crudes has plunged 58 percent since prices peaked in June.

“I’d rather borrow from the market than from China,” Carter said. “They are clearly overly reliant on China at this point.”

12 February 2015

Bondholder Love for Ecuador’s Correa Is Questioned: Andes Credit

By Nathan Gill
(Bloomberg) -- President Rafael Correa’s resourcefulness in the face of sinking oil prices has made Ecuador a favorite among emerging-market bond investors this year.

To AllianceBernstein and Capital Economics, Correa needs to do more to ensure that the goodwill doesn’t prove fleeting.

The nation’s debt securities returned 4.9 percent as Correa said he’d cut spending for the first time since taking power in 2007 and lined up more than $7.5 billion in loans from China. That gain, the biggest in emerging markets behind Belize, is a sign of investor confidence in the OPEC nation’s ability to weather a 53 percent plunge in crude prices since June.

But with Ecuador needing a record $10.5 billion to cover its total financing needs this year, Correa can’t afford to rest on his laurels, said Marco Santamaria, a money manager at AllianceBernstein, which oversees about $27 billion in emerging-market debt. While Ecuador’s borrowing costs have tumbled from a four-year high in December, at 9.9 percent, they’re still the highest in Latin America after Venezuela.

Bond prices will be “held hostage to the vagaries of oil prices and, to some degree, the market’s going to pay attention to whether or not the fiscal-adjustment program is carried out,” Santamaria said by telephone from New York.

China Loans

The Finance Ministry’s press office didn’t reply to an e-mailed request for comment on the nation’s bonds and measures to further bolster the nation’s finances. The Economic Policy Ministry declined to comment.

Finance Minister Fausto Herrera said in a Jan. 13 interview that the government obtained enough financing from China to avoid deeper budget cuts even if oil prices average less than $40 a barrel. Like his counterparts in Venezuela and Argentina, Correa traveled to China at the start of the year to ask for loans as the price of oil, which accounts for a quarter of Ecuador’s revenue, fell to a six-year low.

Ecuador, whose Oriente crude sells for $47.14 a barrel, announced on Jan. 5 it would cut 2015 spending by $1.42 billion, or almost 4 percent.

“It doesn’t sound like that’s going to be enough,” David Rees, an emerging-market economist at London-based Capital Economics, said by telephone. “Their financing needs will need to be much higher if they’re going to avoid really deep cuts in spending.”

‘Painful Contraction’

He predicts Correa, a 51-year-old former economics professor, will probably need to make deeper cuts later this year that will further crimp economic growth.

Ecuador’s $101 billion economy will stall this year, compared with an expansion of 3.5 percent in 2014, according to Capital Economics.

“With oil prices at $50 we’re probably heading into a recession at the very least or quite a painful contraction,” Michael Henderson, principal analyst at Verisk Maplecroft, said by telephone from Bath, England. “I don’t think that we’re seeing any kind of real signs of stresses yet, but things can change rather quickly.”

29 January 2015

Ecuador’s Dollar Reliance Worsens Impact of Oil, Correa Says

By Nathan Gill
(Bloomberg) -- President Rafael Correa, a former economics professor critical of Ecuador’s use of the dollar as its official currency, said the greenback is worsening the impact of falling crude prices as liquidity in the economy contracts.

The reliance on the dollar means the government can’t print more money to increase the amount of cash circulating in the economy, hurting growth, Correa said in comments from Costa Rica, broadcast on the presidential website. The country adopted the dollar in 2000 after a banking crisis in the 1990s.

Ecuador depends on crude for about half of its export revenue, and the nation is taking steps to minimize the fallout on the economy from lower oil prices, he said. The government, which defaulted on $3.2 billion of the nation’s foreign bonds six years ago, announced this month that it would cut planned public spending by about 4 percent and take on more debt with China to offset the plunge in crude.

Lower oil prices “hit us hard,” Correa said. “In a dollarized regime, a technically absurd barbarity that occurred in Ecuador after a terrible crisis, the problem is more severe.”
Ecuador’s economic growth will slow to 3.3 percent this year from an estimated 3.9 percent in 2014, according to the median forecast of six economists surveyed by Bloomberg from Dec. 12 to Dec. 17.
Prices for the OPEC member’s Oriente oil have fallen 59 percent to $41.26 a barrel since last year’s peak in June, according to data compiled by Bloomberg. The Finance Ministry had forecast an average export price for its Oriente and Napo crudes of $79.70 in the 2015 budget. It has now cut that to between $50 and $60, Finance Minister Fausto Herrera said in an interview this month.

Ecuador Deficits

Ecuador has posted annual current-account deficits since 2009, draining dollars from the economy, according to central bank data. The bank reported a $79 million deficit in the third quarter, the last period for which data is available.
To prevent a dollar shortage crimping public spending last year, Correa used more than half the central bank’s gold reserves as collateral to obtain a $400 million loan from Goldman Sachs Group Inc. Ecuador already uses most of its monthly oil output to repay loans from China, according to the Finance Ministry.

Electronic Currency

In December, the central bank created a new, electronic currency to use alongside the greenback that it said would boost banking services in rural areas and reduce the cost of money transfers. Use of the electronic coin is voluntary, will be backed by liquid assets and can’t be swapped for government bonds, according to the central bank.

The Latin American country expects total financing needs for 2015 to rise to about $10.5 billion from a previous estimate of $8.81 billion and will use loans from China, multilateral lenders and the nation’s social security agency to help offset a drop in the price of crude, Herrera said.

Dollarized economies face challenges when export revenue falls and when policy makers don’t save enough to offset the drop in government income, said Juan Lorenzo Maldonado, an economist at Credit Suisse Group AG.

Still, Ecuador has faced periods when oil prices were lower than current levels and shouldn’t have problems weathering the drop in crude, Maldonado said.

“Dollarization can exist with a lower level of oil; you just need to make sure that you’re financing your deficit,” Maldonado said Wednesday in a telephone interview from New York. “Ecuador can withstand the shock.”

Link: http://bloom.bg/1Kbrlna

15 January 2015

Bondholders Embracing Chavez’s Disciple in Ecuador: Andes Credit

By Nathan Gill
(Bloomberg) -- Nicolas Maduro and Rafael Correa are both socialist disciples of the late Venezuela President Hugo Chavez, but only one is managing to convince bondholders he’s got the ability to weather the collapse in oil prices.

While Chavez’s handpicked successor Maduro is struggling to ward off a default, Ecuador counterpart Correa is getting a vote of confidence as he cuts spending and lines up more than $7.5 billion in loans from China. Ecuador’s benchmark notes due 2024 have gained 2.3 percent in the past month, compared with a 16 percent plunge in similar-maturity Venezuelan securities.

Correa, who has long allied himself with Chavez’s socialist ambitions and declared three days of mourning to mark his death, is now deviating from policies that saw him use Ecuador’s oil wealth to finance record spending. Maduro’s refusal to break with the currency controls and gasoline subsidies embraced by Chavez is deepening concern that Venezuela, which gets about 95 percent of its export revenue from oil, will run out of money as soon as this year.

“The real clear difference is coming out in terms of the quality of leadership and how that’s going to help some countries escape potential crises,” Bryan Carter, who helps manage about $360 million of emerging-market debt at Acadian Asset Management, said by telephone from Boston. Maduro “is not very creative with problem solving, so he’s not inventing solutions like we see with Correa.”

China Trip

The press office of Venezuela’s Finance Ministry didn’t respond to e-mail or telephone messages seeking comment on the planned economic measures or investors’ perceptions of Maduro’s leadership.

Correa, a 51-year-old former economics professor who came to power in 2007 touting his ties to Chavez, last week traveled to China, the world’s biggest crude importer, to ask for loans as the price of the country’s Oriente crude fell to $40.93 a barrel.

Ecuador, an OPEC member that relies on oil to finance about a quarter of revenue, said Jan. 6 that the Export-Import Bank of China granted it a $5.3 billion, 30-year loan with an interest rate of 2 percent. The next day the ministry said it obtained a total of $7.5 billion in credit and loans from the Asian nation.

And while Maduro also said last week he obtained $20 billion of investment from the Asian nation after his own visit, he didn’t provide details as to whether the money was in cash or longer-term contracts. Since the announcement, derivatives traders have pushed the likelihood Venezuela will default in a year to 80 percent.

Spending Cut

Ecuador unveiled its loan from China a day after the government said it would cut the 2015 budget by $1.42 billion, or almost 4 percent. During his eight-year tenure, Correa had more than tripled public spending. He has a Ph.D. from the University of Illinois at Urbana-Champaign.

“With the budget cut and investment that we’ve received, we can balance public finances with an oil price much lower than $40 a barrel,” Finance Minister Fausto Herrera said in a interview at his office in Quito. “I’m not someone to give lessons to Venezuela, nor would I like it if they gave me lessons from outside Ecuador. But we’ve always said that when a brother country like Venezuela needs the Ecuadorean government’s help, we’ll be ready to offer it.”

‘True Monsters’

Correa’s reversal on spending is the latest sign he’s willing to depart from earlier policies. As oil prices slid last year, he reached deals with holdout creditors from a default on $3.2 billion of foreign debt that he had orchestrated more than five years earlier, when he dubbed bondholders “true monsters.” He also obtained loans from Goldman Sachs Group and the World Bank; previously he had cut ties with international lenders.

Moody’s Investors Service underscored the differences between the Andean nations when it cut Venezuela’s rating two levels to Caa3 this week, less than a month after lifting Ecuador’s grade one step to B3. The countries had been rated the same at Caa1, seven levels below investment grade.
While Maduro’s popularity continues to take a hit, Correa remains popular, with a 61 percent approval rate.

Correa “can get through pretty much whatever he wants,” Acadian’s Carter said.

13 January 2015

China Rescues Ecuador Budget From Deeper Cuts as Crude Drops

By Nathan Gill
(Bloomberg) -- Ecuador, an OPEC nation that relies on crude for about a quarter of revenue, obtained enough financing from China to avoid deeper budget cuts even as its oil price fell below $40 a barrel, Finance Minister Fausto Herrera said.

The Latin American country expects total financing needs for 2015 to rise to about $10.5 billion from a previous estimate of $8.81 billion, Herrera said today in an interview at his office in Quito. The government will use loans from China, multilateral lenders and the nation’s social security agency to help offset a drop in the price of crude, the nation’s biggest export, he said. The ministry isn’t planning to sell international bonds this year after global interest rates rose, he said.

Ecuador’s government announced last week that it would cut $1.42 billion of public spending on items such as new schools and police stations while going deeper into debt with the Asian nation. On top of the $7.5 billion in Chinese loans and credit lines announced last week, the government expects to sign loan deals with China for an additional $1.5 billion later this month and is in talks with the country to borrow another $1.5 billion in May or June, Herrera said.

“The public finances for 2015 are totally closed,” Herrera said. “With the budget cut and investment that we’ve received, we can balance public finances with an oil price much lower than $40 a barrel.”

Borrowing Costs

Ecuador, the smallest member of the Organization of Petroleum Exporting Countries, has seen its Oriente crude drop 42 percent to $39.38 a barrel since the nation’s congress approved the 2015 budget on Nov. 20.

The Andean country now estimates prices for its oil will average $50 to $60 a barrel this year, down from a previous forecast of $79.70, Herrera said.

As oil prices have fallen, the nation’s borrowing costs climbed, pushing up yields on Ecuador’s benchmark dollar bonds due in 2024 to 11.2 percent, according to data compiled by Bloomberg. Those rates are probably too high for a new issuance, Herrera said.

“With these interest rates, we believe that it is very difficult for Ecuador to enter into capital markets today,” Herrera said. “We can finish the year perfectly with the financing we have already signed with China, multilaterals as well as the social security agency.”

New Loans

The new loans from China are expected to carry an interest rate of between 6 percent and 7 percent, Herrera said. The government is also in talks with Chinese banks to help finance an oil project in the Yasuni National Park, the minister said. If that doesn’t work out, the Finance Ministry or the country’s state-owned oil producer Petroamazonas could sell global bonds to finance the project.

Ecuador will also use about $800 million in loans from the Inter-American Development Bank this year, the minister said. The government had previously announced it would receive $300 million from the regional lender tied to infrastructure projects. Herrera said today the country would receive an additional $500 million in discretionary lending from the agency, known as the IDB.

The government also plans to retire its $650 million of bonds due in December and will meet all of its financial obligations, Herrera said.

Separately, Herrera said a $5.3 billion concessional credit from China, announced last week, will be used to pay for goods and services from Chinese companies. Ecuador expects to receive between $600 million and $700 million of that credit this year, he said. A deal announced last week to allow China’s Powerchina Xibei Engineering Corp. to explore for new metal deposits in Ecuador is tied to the credit line and will cost the government about $220 million, Herrera said.

“China has certain interests and gives certain preferences to certain projects in Ecuador,” Herrera said. “We plan for this to be the last year with high deficits.”

Bloomberg Link: http://bloom.bg/1y5ki9J



China Rescues Ecuador Budget From Deeper Cuts as Crude Drops

By Nathan Gill
(Bloomberg) -- Ecuador, an OPEC nation that relies on crude for about a quarter of revenue, obtained enough financing from China to avoid deeper budget cuts even as its oil price fell below $40 a barrel, Finance Minister Fausto Herrera said.

The Latin American country expects total financing needs for 2015 to rise to about $10.5 billion from a previous estimate of $8.81 billion, Herrera said today in an interview at his office in Quito. The government will use loans from China, multilateral lenders and the nation’s social security agency to help offset a drop in the price of crude, the nation’s biggest export, he said. The ministry isn’t planning to sell international bonds this year after global interest rates rose, he said.

Ecuador’s government announced last week that it would cut $1.42 billion of public spending on items such as new schools and police stations while going deeper into debt with the Asian nation. On top of the $7.5 billion in Chinese loans and credit lines announced last week, the government expects to sign loan deals with China for an additional $1.5 billion later this month and is in talks with the country to borrow another $1.5 billion in May or June, Herrera said.

“The public finances for 2015 are totally closed,” Herrera said. “With the budget cut and investment that we’ve received, we can balance public finances with an oil price much lower than $40 a barrel.”

Borrowing Costs

Ecuador, the smallest member of the Organization of Petroleum Exporting Countries, has seen its Oriente crude drop 42 percent to $39.38 a barrel since the nation’s congress approved the 2015 budget on Nov. 20.

The Andean country now estimates prices for its oil will average $50 to $60 a barrel this year, down from a previous forecast of $79.70, Herrera said.

As oil prices have fallen, the nation’s borrowing costs climbed, pushing up yields on Ecuador’s benchmark dollar bonds due in 2024 to 11.2 percent, according to data compiled by Bloomberg. Those rates are probably too high for a new issuance, Herrera said.

“With these interest rates, we believe that it is very difficult for Ecuador to enter into capital markets today,” Herrera said. “We can finish the year perfectly with the financing we have already signed with China, multilaterals as well as the social security agency.”

New Loans

The new loans from China are expected to carry an interest rate of between 6 percent and 7 percent, Herrera said. The government is also in talks with Chinese banks to help finance an oil project in the Yasuni National Park, the minister said. If that doesn’t work out, the Finance Ministry or the country’s state-owned oil producer Petroamazonas could sell global bonds to finance the project.

Ecuador will also use about $800 million in loans from the Inter-American Development Bank this year, the minister said. The government had previously announced it would receive $300 million from the regional lender tied to infrastructure projects. Herrera said today the country would receive an additional $500 million in discretionary lending from the agency, known as the IDB.

The government also plans to retire its $650 million of bonds due in December and will meet all of its financial obligations, Herrera said.

Separately, Herrera said a $5.3 billion concessional credit from China, announced last week, will be used to pay for goods and services from Chinese companies. Ecuador expects to receive between $600 million and $700 million of that credit this year, he said. A deal announced last week to allow China’s Powerchina Xibei Engineering Corp. to explore for new metal deposits in Ecuador is tied to the credit line and will cost the government about $220 million, Herrera said.

“China has certain interests and gives certain preferences to certain projects in Ecuador,” Herrera said. “We plan for this to be the last year with high deficits.”

06 January 2015

Ecuador Gains $5.3 Billion Credit Line From China as Oil Tumbles

By Nathan Gill
(Bloomberg) -- The Export-Import Bank of China granted Ecuador a $5.3 billion credit line after a slide in oil to an almost six-year low prompted spending cuts for the OPEC member.

Finance Minister Fausto Herrera said in a statement published today in the president’s official gazette that the Andean nation will use about $1.5 billion of the funds this year to finance public-work projects such as irrigation and transportation. The credit line will have a 30-year maturity and an interest rate of 2 percent, according to the statement.

President Rafael Correa, a 51-year-old former economics professor, traveled to China this week to ask for loans to help prop up public spending after the price of crude, Ecuador’s biggest export, plunged to its lowest level since April 2009. The government announced yesterday that it would cut the 2015 budget by $1.42 billion, or almost 4 percent, because of a decline in oil revenue.

China “is very interested in continuing to finance because of the seriousness of the government and our ability to execute and plan,” Correa said in a separate statement published today in the presidential gazette. “The price of oil has kept changing, which makes it necessary to respond with adjustments.”

Ecuador also said today that China will loan an additional $250 million to help switch kitchen stoves to electricity from natural gas. The Andean country said yesterday that China will provide $24 million in development funding for education, rural security and customs inspections.

Oil slumped about 50 percent in 2014, the most since the 2008 financial crisis, after the Organization of Petroleum Exporting Countries resisted calls to cut output as it competes with U.S. producers.