May 1 (Bloomberg) -- Ecuador bondholders owning 25 percent of the country’s $510 million of defaulted bonds due 2012 demanded they be paid back in full immediately, undermining the government’s offer to buy back the debt at a discount, said JPMorgan Chase & Co.
Ecuador defaulted on $3.2 billion in bonds due 2012 and 2030 -- close to a third of its foreign debt -- on Dec. 12 after a commission President Rafael Correa installed said it found evidence of criminal wrongdoing tied to their issuance. The government has offered to pay 30 cents for every $1 in the bonds’ face value under the auction announced April 20.
The government was notified of the bondholders’ decision to reject the buyback offer by the U.S. Bank National Association, which serves as their trustee, Quito-based brokerage Analytica Securities said in a note to clients dated yesterday. Bondholders reached that decision on April 27, JPMorgan said.
“The move raises the prospects of a formal lawsuit from bondholders that could potentially complicate Ecuador’s ability to successfully carry out its proposed buyback transaction and/or continue to service ‘legitimate’ global ‘15s”, JPMorgan strategist Ben Ramsey wrote in a note to clients today.
Ecuador’s 2012 bond fell 1 cent, or 3.2 percent, to 30.50 cents on the dollar at 4:58 p.m. in New York, according to JPMorgan. The nation’s $650 million bonds due 2015 lost 1.25 cent, or 2.8 percent, to 43.50 cents on the dollar.
Calls to Economy Minister Diego Borja’s mobile phone were not immediately returned. Ecuador government offices were closed today for a national holiday. Amy Frantti, a spokeswoman for the U.S. Bank National Association, declined to comment.
‘Less Passive’
“Bondholders seem to be finally becoming less passive in their response to Ecuador’s politically motivated bond default,” Ramsey wrote. “The move was a bit surprising insofar as we had presumed that Ecuador might have obtained a blocking position by buying 75 percent of the bonds in the secondary market in the aftermath of the November default.”
Finance Minister Maria Elsa Viteri is scheduled to hold a conference call with bondholders to discuss the auction on May 5.
On the conference call, “the government is nearly certain to present as a unique opportunity to get paid and as a take-it- or-leave-it proposal,” Ramsey said.
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