(Corrects oil price in graf 9 to US$79.7 from US$79.7bn)
By Davide Scigliuzzo
NEW YORK, March 19 (IFR) - A dip in crude prices forced Ecuador to pay up on its latest bond sale Thursday, overshadowing the oil exporter’s push to mend relations with international creditors and clean up its reputation as a serial defaulter.
Hurt by a 13% fall in oil prices since it began marketing the new bond sale earlier this month, the Andean nation has been forced to target a shorter maturity, a smaller size and a higher yield than originally expected.
The setback came in spite of the country’s efforts to curb the negative impact of falling oil revenues on government finances and to improve relations with creditors after voluntarily defaulting on US$3.2bn of debt in 2008.
“They are trying to do the right thing, but I think oil prices are just moving in the wrong direction for them,” said a Boston-based investor.
Sole lead manager Citigroup earlier this week was sounding out interest for a seven-year maturity at a yield of around 10%, according to two New-York based investors who met with the sovereign. The deal was expected to have a size of at least US$1bn.
As yields on its outstanding 2024 notes continued to widen, however, Ecuador was eventually forced to adjust pricing expectations, opting for a five-year maturity through which it raised just US$750m at a final yield of 10.5%.
Ecuador’s 2024s were quoted on Thursday morning at a cash price of around 87.00, for a yield of close to 10.0% - a far cry from the 94.25 price and 8.8% yield spotted on March 9, when the country kicked off the bond roadshow in London.
The price of West Texas Intermediate (WTI) crude oil has dropped by 13% over the same period to around US$43 a barrel on Thursday, close to a six-year low.
In response to falling crude price, earlier this year the government slashed its budget for 2015 by 4% to US$34.9bn and lowered its assumption on the price of oil to US$60 a barrel from US$79.7 previously, winning the praise of some buy-side accounts.
Ecuador’s economy, which relies on oil for more than 50% of exports, expanded by around 3.8% in 2014, below government estimates of between 4.5% to 5.1%. This year’s growth forecast of 4.1% is expected to be revised down over the coming weeks.
Ecuador’s need to pay up to maintain market access has taken some of the shine off the country’s recent efforts to improve relations with creditors and better its poor track record of repaying its debts.
“When you look at their credit metrics, yields should not be this high,” said the Boston-based investor, “A perceived lack of willingness to pay is still impacting their yields.”
Speaking to investors during the roadshow, country officials reiterated the government’s commitment to repay a US$650m 9.375% note maturing in December - the first time ever that Ecuador would repay an international bond in full.
In another sign that Ecuador is making efforts to put its past defaults behind it, the government reached a settlement earlier this week with Boston-based asset manager GMO, widely believed to be the country’s last institutional holdout creditor.
Reporting by Davide Scigliuzzo; Editing by Paul Kilby