Bloomberg News

Ecuador Scraps Planned Bond Sale on Increased China Lending

February 17, 2012

(Updates with Correa’s comments in fourth paragraph, Kinross mine contract in fifth.)

Feb. 16 (Bloomberg) -- Ecuador won’t tap international credit markets this year after receiving loan commitments from China that help cover the South American nation’s $4.23 billion budget deficit, President Rafael Correa said.

The government is negotiating a $1.7 billion loan from China and expects to receive the first payment by August, Correa said today at a meeting with the country’s foreign press association in Quito.

Central bank President Pedro Delgado, Correa’s second cousin, said last month China had agreed to loan at least $1 billion and that the government was in talks with Hamilton, Bermuda-based Lazard Ltd. and Clifford Chance LLP to structure a bond sale, for what would be the country’s first global issue since defaulting on $3.2 billion of debt in 2008 and 2009.

“There’s no pilot plan,” Correa, a 48-year-old economist and former university professor, said. “At one time it was considered, but we’ve found financing sources.”

Non-Renewable Natural Resources Minister Wilson Pastor, speaking today at the same event, said the government may not sign a mining contract with Canada’s Kinross Gold Corp. after the company made “unacceptable” demands.

Tasiast, Loan Outlook

Kinross said yesterday it would delay its mine in Ecuador, known as Fruta del Norte, and concentrate on expanding its Tasiast mine in Mauritania. The company had planned to invest $1.1 billion in the South American country, Pastor said in December.

“We are in the last phase and we hope there is a positive reaction to our messages from the head of the company,” Pastor said today, referring to contract negotiations with Kinross. “There exists the possibility that we won’t sign.”

The yield on Ecuador’s 9.375 percent bonds maturing in 2015 rose two basis points to 9.12 percent as of 2:47 p.m. local time, according to prices compiled by Bloomberg. The bond’s price fell 0.05 cents to 100.79 cents on the dollar.

Since Ecuador’s default, the government has borrowed about $7.25 billion from China, or 16 percent of the country’s total outstanding debt, according to Fitch Ratings, in exchange for future oil exports. It has also tapped the nation’s public pension fund and raised taxes on companies including oil producers and banks to finance the budget.

Ecuador expects this year to receive a total of $4.38 billion in loans from multilateral lenders such as the Inter- American Development Bank and the “friendly” nations of China and Russia to help cover the deficit, Finance Minister Patricio Rivera has said.

--Editors: Harry Maurer, Robert Jameson

To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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