Ecuador’s government plans to launch a new bond next year, which, if it materializes, will mark a return to international markets six years after its last default.
“We are looking at options for financing next year,” Fausto Herrera, deputy finance minister told Emerging Markets yesterday. “Floating a bond is one of the alternatives that could generate resources next year.”
The catch for the government is dealing with holdouts from its default on $3.2 billion in bonds in 2008, and new moves by President Rafael Correa’s government that could cancel some bilateral investment treaties (BIT).
The government bought back 91% of the 2030 bonds the following year, but it never managed to close the deal with a small group of bondholders. Herrera said the government was working on “new formulas”. “We will offer new conditions this year to resolve any outstanding problems,” he said.
Herrera did not elaborate on the new mechanisms or the amount of the possible bond, which was still under consideration. In remarks earlier yesterday to LatinFinance, he said a new exchange offer to solve the issue of the holdouts on the defaulted bonds would be made in the first semester.
Another hurdle is the Correa administration’s decision in early March to submit legislation to Congress, which its party controls, asking them to annul a bilateral investment treaty with the United States. Ecuador has 22 other investment protection treaties in place besides the one with the United States.
The issue with the US treaty is linked to several cases involving oil companies brought to international arbitration agencies under the BIT.
One of the cases concerns the 20-year battle between oil giant Chevron and 30,000 plaintiffs from indigenous communities over alleged contamination. The company was fined $19 billion in 2011 in the case.
Chevron won a ruling from the Permanent Court of Arbitration, based in The Hague, demanding that the government do what was necessary to stop enforcement of the decision. Ecuador also lost a case with Occidental Petroleum at the World Bank’s International Centre (CORR) for the Settlement of International Disputes (ICSID) and was ordered to pay $1.77 billion for taking over assets in a dispute from the past decade. It has two other cases with oil companies, US-based Burlington Resources and Frances’s Perenco, before ICSID.
Analysts and ratings agencies said that liquidity in the market and the appetite for paper made Ecuador’s plan feasible.
“I think Ecuador is a pretty decent credit. I don’t think it would have a hard time coming to market,” said Walter Molano, of US-based BCP Securities.
Rating agencies Fitch and Standard & Poor’s also believe that Ecuador might be able to do it, given bonds floated by countries with lower ratings. Bolivia, Honduras and Paraguay have all come to the market and were all oversubscribed.
“If they were to issue, I think the markets would be open,” said Joydeep Mukherji, S&P’s managing director of sovereign ratings.
Santiago Mosquera, a director in Fitch’s sovereign group, said that despite a few rough patches he expected Ecuador to be in a better spot in the coming years. This could also help increase appetite. “The government is spending heavily on infrastructure. I think that they are going to be in a better position in a couple of years,” he said.
- Like every year, Emerging Markets daily newspaper covers the Inter-American Development Bank’s annual meeting, held in Panama in mid-March. Pick up your copy at the meeting, read the news on our website and follow us on twitter @emrgingmarkets