The people of Ecuador are rising up to refound their country as a pluri-national homeland for all. This inspiring movement, with Ecuador's indigenous peoples at its heart, is part of the revolution spreading across the Americas, laying the groundwork for a new, fairer, world. Ecuador Rising aims to bring news and analysis of events unfolding in Ecuador to english speakers.

Monday, April 06, 2009

Ecuador to Unveil Bond Restructuring Plan April 20

By Stephan Kueffner and Helen Murphy

March 28 (Bloomberg) -- Ecuador will unveil detailed plans on April 20 for restructuring its $3.2 billion in defaulted international debt, President Rafael Correa said.

Correa, in his regular Saturday radio and television broadcast today, gave no specific indication of the terms holders of the country’s 2012 and 2030 bonds will be asked to accept. Standard & Poor’s Rating Services analyst Richard Francis said today in an interview he expects the government to offer 10 cents to 30 cents on the dollar to buy back the debt.

“That debt was overpriced in the 1999 renegotiation,” Correa, a 45-year-old economist, said. “We will restructure it in the interest of the country and with legitimacy and legality.”

Correa, whose criticism of foreign debt is a political trademark, will make the restructuring offer six days before he stands for election in a bid for a second consecutive term. That will give him a chance to show the electorate he’s tough on unpopular bankers, said economist Vicente Albornoz, head of the Cordes research institute in Quito.

“He’s buying time while trying to show a political triumph,” Albornoz, said in a phone interview today. “He can tell voters ‘look how we’ve scored a goal.’”

Criminal Wrongdoing

Correa, an ally of Venezuelan President Hugo Chavez, defaulted on the bonds on Dec. 12 after an audit he commissioned said there was evidence of criminal wrongdoing in the issuance of its foreign debt. Ecuador has enough cash to meet its interest payments and its debt amounts to less than 20 percent of gross domestic product.

Still, Ecuador’s $45 billion economy is likely to shrink 1 percent this year as the nation’s oil revenue declines and access to credit dries up, said S&Ps Francis.

“In the past if they got into severe problems Venezuela would have, on a marginal level, helped Ecuador out,” said Francis on the sidelines of the Inter-American Development Bank’s annual conference in Medellin, Colombia.. “Now that’s not the case because Venezuela has its own problems.”

At the time of the default, Correa said it was better for Ecuador to renegotiate the $510-million, 12 percent bond due 2012 and the $2.7-billion, 10 percent bond due 2030, from a position of strength.

Deteriorating Accounts

Since then, Ecuador’s accounts have deteriorated amid a swing to a trade deficit brought on by the plunge in revenue from the OPEC-member’s top export, crude oil, and shrinking markets for other key exports including shrimp and roses. The default has exacerbated the nation’s problems getting access to credit during the global financial crisis, Correa told government daily El Telegrafo on March 11.

“They have a lack of financing and right now they are running through reserves,” said Francis. “At some point, if get low on reserves, it will put dollarization to the test.”

Finance Minister Maria Elsa Viteri said today in Medellin the government expects 2 percent growth this year.

Ecuador’s government may be forced to issue scrip as a transition away from the dollar, Francis said. Ecuador began using the dollar in 2000, after its own currency, the sucre, lost about two-thirds of its value the previous year, and the deepest recession in more than a century forced the country to default on $6.5 billion of debt.

“If they start issuing IOUs -- and it’s certainly a possibility -- that would be the transition in my mind and then after that it might just collapse,” Francis said.

Correa has denied any plans to drop the dollar, instead capping imports and seeking $1.5 billion from multilateral lenders to compensate for deteriorating exports.

Viteri said today New York-based Mackenzie Partners Inc., a proxy-solicitation and investor relations company, will take charge of contacts with holders of the defaulted bonds.

Ecuador is receiving financial advice from Lazard Ltd., which also advised Argentina in its negotiations with creditors after its default, and legal advice from Clifford Chance LLP.

Viteri reiterated that the government will continue making scheduled payments on its bond maturing in 2015.

No comments:

Post a Comment