3 Min Read
By Paul Kilby
NEW YORK, Jan 10 (IFR) - The Republic of Ecuador took center stage in Latin America's primary market on Tuesday, returning with its fourth bond deal in less than a year.
The South American country has been quick to take advantage of upturns in the market to raise much needed funding, and Tuesday's deal was no exception.
Coming on the heels of Brazilian oil company Petrobras's successful US$4bn issue on Monday, Ecuador raised US$1bn through a tap of its 9.65% 2026 at a yield of 9.125%.
Thanks to an order book that reached US$2.25bn, leads Citigroup were able to squeeze initial price thoughts from low to mid 9%s to guidance of 9.25% (+/- 1/8).
Hit by the oil rout that began in 2014, Ecuador has leaned heavily on the international capital markets to help it cover fiscal shortfalls.
Including Tuesday's deal, the sovereign has now raised US$3.75bn through dollar bond sales over the last six months or so.
With a presidential election in February that could result in a more market-friendly administration, and crude oil prices now in better shape, some investors see upside in the credit - despite its history of defaults.
"With less volatility in the oil price, the sovereign should have an improved fundamental backdrop," said Sean Newman, a senior portfolio manager at Invesco.
Newman also thought pricing attractive enough, given that the 2026 bond was trading at around 105.50 to yield 8.80% before the tap was announced early Tuesday.
"The new issue premium is close to 40bp," he said. "It is not screamingly cheap, but it is in the realm that would be considered fair."
The bond bounced on the break to trade at 104.00-104.625, according to one trader.
But other accounts take a less sanguine view of the country's prospects, even if a new government gets a warmer welcome from the market.
"You will see a tightening associated with the election, but thereafter the market will begin to realize the government faces an uphill battle," said Sarah Glendon, head of sovereign research at hedge fund Gramercy.
After the election the country will likely have to undergo a painful process of fiscal consolidation at a time when the debt dynamics are far from ideal.
Glendon said public sector debt-to-GDP stands at around 40%, but rises to 52% if off balance sheet debt such as arrears to suppliers is included.
This year Ecuador's gross financing needs are around US$10bn, half of which is expected to be raised in the external markets, she said.
"This is not so much a debt stock problem and more of a debt profile issue," she said. (Reporting by Paul Kilby; Editing by Marc Carnegie)