Ecuador defers (“illegitimate) bonds’ interest payments

Mercopress, February 15, 2009

Ecuador won't pay bondholders 135 million US dollars in interest while it decides whether to default on a significant percentage of its foreign debt, deemed "illegitimate" by in audit, said on Saturday Finance minister Maria Elisa Viteri.

The administration of President Rafael Correa will take advantage of a 30-day grace period that allows it to defer payment on 2.7 billion in so-called Global 2030 bonds while it works to find "an integral solution to the issue of the debt" said the minister confirming the information advanced on Friday on the Executive’s site.

"When we have a defined proposal ready, Ecuador will contact bondholders" she told reporters.

Last December President Correa suspended a 30.6 million US dollars interest payment on 510 million in bonds due in 2012, declaring a moratorium on those and the 2030 bonds after a commission recommended he default on 3.9 billion USD in foreign debt.

The commission's audit accused former officials and bankers of profiting irresponsibly from three bond issues (2012, 2015 and 2030) amid a 2000 and 2005 debt restructuring, making the contracts "illegitimate." Officials involved in the deals have denied wrongdoing.

Ms Viteri did not give details but admitted that some of the alternatives considered are restructuring, repurchase, renegotiation or swapping for new bonds.

Lazard Freres from France and Clifford Chance from Britain are currently in negotiations on the possible alternatives which seek a substantial discount on the bonds, President Correa was earlier quoted

Ecuador has invited EMTA, an emerging markets trading association of debt holders, based in New York to the table in order to discuss the default on the 2012 global bonds and payments due on a 2030 bond, reported Reuters which disclosed a letter sent to EMTA members.

"Convinced that a better understanding of the creditors' views and expectations can help both parties to reach a suitable solution in forthcoming discussions, the Ministry of Finance, assisted by its financial and legal advisors, respectively Lazard Freres and Clifford Chance, wishes to better identify its 2012 and 2030 bondholders" the letter to EMTA said.

The decision to forego December's interest payments soured international investors, forcing Ecuador to turn to its Social Security Institute to buy 1.2 billion US dollars in bonds issued since December to finance its 2009 budget.

Before his landslide election win in 2006, Correa promised he would seek to slash foreign debt payments to free up money for social programs.