Ecuador heads for holdouts deal

The Andean nation plans on forging a definitive solution to the holdouts from its 2008 bond default in the coming months, its finance minister has said

  • By Lucien Chauvin
  • 23 Mar 2010
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Ecuador’s government plans on forging a definitive solution to the holdouts from its 2008 bond default in the coming months.

“There will be new dialogue in the next few months that will close this process”, Ecuadorian Finance Minister Elsa Viteri said yesterday. “We believe that there is a lot of room for creativity.”

She reiterated that Ecuador will meet forthcoming interest payments on $650 million worth of 2015 bonds.
Ecuador announced in early 2008 that it would not meet payments on 2012 and 2030 bonds, considering them illegal. Viteri said it was the right decision, because the bonds “were unjust and went against the interests of our country”.
The initial round of negotiations achieved approximately 90% acceptance, with bond holders receiving around $0.40 per $1. Subsequent negotiations last year moved the number up to 94%. The deal was done through a mechanism known as a modified Dutch auction.

Ken Levine, of the Wall Street law firm Carter Ledyard & Milburn LLP who advised Ecuadorian bondholders, said many investors had purchased the bonds at a discount rate, so “preferred to take the money rather than face the cost and uncertainty of a lengthy legal process”.

He shares Viteri’s belief that the 6% holdouts will come around because of the high cost of litigation. “The holdouts would be looking at a long and costly process trying to litigate. I think many will accept the deal, which will probably be a little sweeter than the initial offer,” he said.

While the Ecuadorian process has been much less complicated than the bond negotiations with Argentina’s creditors, the default does pose problems for President Rafael Correa’s government if it does decide to the return to the international market.

“If Ecuador comes to the bond markets in the future, I expect that investors will demand a high level of protection in case of another default,” said Levine. Ecuador should also pledge collateral that could be seized in case of a default, such as revenues from oil sales.”

Viteri said she sees no need to turn to the markets to finance development. President Rafael Correa’s administration plans to use internal savings for infrastructure and social projects, as well as loans from multilateral institutions.
Ecuador could attract upward to $2.5 billion in loans, but this amount would be unnecessary. The amount would likely be below $1 billion, coming primarily from the IDB and CAF.

The Correa government is expecting a big rebound from 2009, when, like all countries in the region, GDP growth dropped significant compared to the previous years. Official GDP forecasts for 2009 are 1.5%, while the projection is 6% for 2010.

“We were able to grow about the regional average, which was actually –1.8%, which is what we always said. Growth will recover in 2010 to the 2008 levels,” said Viteri.

She said the projections for inflation this year are 3%, which are below the country’s historic levels, and exports earnings, which tanked last year, should recover as oil prices stabilize between $70-80/barrel. More than 60% of the country’s income comes from oil reserves.

  • By Lucien Chauvin
  • 23 Mar 2010

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
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1 Citi 253,106.92 930 8.89%
2 JPMorgan 230,914.50 1036 8.11%
3 Bank of America Merrill Lynch 221,389.46 762 7.78%
4 Goldman Sachs 171,499.26 554 6.03%
5 Barclays 169,046.60 646 5.94%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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  • Today
1 HSBC 25,935.16 104 7.16%
2 Deutsche Bank 25,125.19 81 6.94%
3 Bank of America Merrill Lynch 22,023.57 59 6.08%
4 BNP Paribas 19,315.94 110 5.34%
5 Credit Agricole CIB 18,706.93 106 5.17%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 12,578.87 55 8.17%
2 Citi 11,338.07 71 7.36%
3 UBS 10,682.06 44 6.93%
4 Goldman Sachs 10,419.53 53 6.76%
5 Morgan Stanley 10,194.88 57 6.62%