Ecuador to Seek 70% Discount on Bonds in Buyback

By Stephan Kueffner

Dec. 31 (Bloomberg) -- Ecuador plans to buy back its foreign bonds due in 2012 and 2030 at a discount of at least 70 percent in January, a month after defaulting for the second time in a decade, Economy Minister Diego Borja said.

The government will hold auctions to purchase the securities after debt trading picks up in early January, Borja said in a telephone interview.

The 2012 and 2030 securities, which have a face value of $3.2 billion, are trading at 25.5 cents on the dollar after President Rafael Correa skipped a $30.6 million interest payment due Dec. 15, calling the debt “illegitimate” and “illegal.” The government hasn’t decided whether it will also default on $650 million of bonds due in 2015, Borja said. Ecuador has until Jan. 15 to make an interest payment on those securities.

“There’s no decision yet” on the 2015 bonds, said Borja, who was sworn in as economy minister in Guayaquil last week. “Those bonds are still under legal review to determine their legality.”

The 2015 bonds traded today at 27 cents on the dollar, above the prices on the 2012 and 2030 bonds, according to JPMorgan Chase & Co. The bonds traded at 81 cents three months ago.

The South American country will seek to repurchase the 2012 and 2030 bonds, which were issued as part of a 2000 debt restructuring, in a series of auctions, Borja said. He said the government will lower the price it offers with each subsequent auction. He declined to specify at what price the buybacks will start.

Oil Tumble

The default fulfilled a threat Correa, 45, had made since his 2006 presidential campaign. A debt commission he formed last year said in a 172-page report in November that the global bonds due in 2012 and 2030 “show serious signs of illegality,” including issuance without proper government authorization.

A tumble in oil, Ecuador’s biggest export, from July record highs has crimped government revenue. Still, the country’s debt load remains low. Total government debt of $10 billion equals about 21 percent of gross domestic product. Its debt equaled 97 percent of GDP when it defaulted in 1999. Argentina’s debt had swelled to 150 percent of GDP when it halted payment on $95 billion of bonds in 2001, the biggest sovereign default ever.