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By Davide Scigliuzzo
NEW YORK, March 9 (IFR) - A rally in its bonds this year has spurred Ecuador to seek new cash in the international debt markets as the oil exporter rushes to plug a widening financing gap caused by the recent dip in crude prices.
“Given the decline in Ecuador’s yields, a new issue is becoming attractive again,” said Juan Lorenzo Maldonado, an economist at Credit Suisse in New York. “It is important for them to diversify their sources of funding.”
The sovereign, which in 2008 tainted its reputation by voluntarily defaulting on debt it declared illegitimate, could return to the market with a US dollar-denominated bond sale as soon as next week, three sources with knowledge of the situation told IFR on Monday.
A new international bond issue would help the country meet an estimated US$11.4bn in financing needs for this year, while allowing more flexibility in the use of proceeds compared to other sources of funding such as Chinese loans, say analysts.
Ecuador made a landmark return to the international debt markets in June, when it raised US$2bn through a new 10-year bond sale - its first since the 2008 default.
Investors who bought into that sale have experienced a bumpy ride over the past few months, as the notes plunged to a cash price as low as 73 in December following a prolonged decline in the price of oil, Ecuador’s main export.
Since then, however, the notes have recovered most of their losses, underpinned by confidence that the administration of President Rafael Correa is taking the right steps to withstand the oil price shock.
“It is undeniable that they have suffered from lower oil prices, but they have been nimble to adjust to those headwinds,” said a sovereign analyst at a hedge fund in New York.
“I imagine anybody who bought the 2024s at issuance and has held them since then may not be too happy, but the bonds are almost back to par now, while other oil credits are still withering near their lows.”
Based on Monday’s yield of around 8.8% for the 2024s, equivalent to a cash price of 94.25, market participants say Ecuador will have to offer 9% plus yield to attract enough interest from investors.
“I would think people will need to see a decent new issue concession,” said a syndicate banker in New York not involved in Ecuador’s bond sale. “If you are buying this you expect it to outperform.”
The sovereign, rated B3/B+/B, has hired Citigroup to organize investor meetings, which kicked off in London on Monday and will continue in Boston on Tuesday, Los Angeles on Wednesday, San Francisco on Thursday and New York on Friday.
This time around, the country is looking to raise US$1bn, one of the sources said. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby)