19 March 2015

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.