Ecuador, which defaulted on $3.2 billion of its foreign debt four years ago, is planning to tap global credit markets this year as demand for higher-yielding assets drives down borrowing costs, Standard & Poor’s said.
The Andean country’s government first probably would try to buy back bonds from creditors who refused to accept terms of the country’s 2009 debt repurchase, New York-based S&P analyst Richard Francis said today in an audio broadcast on the company’s website. Such a move would reduce legal risks if any new bonds are issued, he said.
Ecuador, home to South America’s third-largest crude reserves, would join Bolivia and Paraguay in tapping international investors amid rising demand for emerging-market bonds. President Rafael Correa, who needs about $6.1 billion to finance the country’s total spending needs this year, has become “more pragmatic” since his Feb. 17 re-election and may implement legal reforms needed to boost private investment, Francis said.
“One of the issues in Ecuador with coming to the market is simply the prior default,” Francis said. “There are some holdouts.” Francis didn’t say where his information came from and didn’t reply today to a telephone message seeking comment.
Ecuador in 2009 bought back 94 percent of its defaulted bonds at 35 cents on the dollar.
The country may return to international bond markets when interest rates are “adequate,” former Finance Minister Patricio Rivera said Feb. 20.
Current Finance Minister Fausto Herrera, who replaced Rivera on April 30, said in March that the government may consider buying back the rest of the defaulted bonds and that terms would not be better than in the 2009 offer. Herrera didn’t reply to a telephone message seeking comment on the possibility of a bond sale.
Yields on Ecuador’s dollar bonds due in 2015, the only global debt the nation kept servicing, have contracted by 157 basis points, or 1.57 percentage points, this year to 7.21 percent as of 1:11 p.m. in Quito, according to data compiled by Bloomberg.
Similar-maturity bonds in Peru have fallen 18 basis points, or 0.18 percentage point, to 0.78 percent in the same time period, data compiled by Bloomberg show. Ecuador is rated B by S&P, five levels below investment grade.
Bolivia in October sold $500 million of 10-year bonds at a yield of 4.875 percent. Paraguay sold $500 million of 10-year bonds in January at 4.625 percent.
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