NEW YORK, Feb 25 (IFR) - Ecuador will struggle to cover growing financing gaps in 2016 as funding options narrow for the Latin American oil exporter in the face of political pressures and rock-bottom crude prices.
Ecuador instilled some market confidence in December after fully repaying the US$650m 2015s, the first time that the country ever covered a maturing global bond.
But access to the international markets has effectively slammed shut this year as investors flee EM credits with high exposure to oil and the sovereign’s bond prices sink in the wake of the recent crude rout.
Ecuador last came to market in May last year when it tapped its 2020s for another US$750m at final yield of 8.50%, marking a vast improvement on the 10.50% it achieved when it first sold the bonds at par in March 2015.
Since then however those bonds have plummeted to trade at a yield of 18.60%-19% while the country’s 2024s are being spotted at 13.%-14%, according to Thomson Reuters data.
Ecuador could take out loans, though that will require significant guarantees to get bilateral lenders on board at a time of low oil prices, Bank of America Merrill Lynch said in a report on Thursday.
Ecuador could also possibly increase advance oil sales, draw down on public sector deposits or carry out further spending cuts. However, with a 2017 presidential election looming, such options are limited, the bank said.
“(We) see it as more likely that the adjustment variables will be international reserves and accumulation of arrears,” the bank said.
“Further drops in reserves and increasing difficulties in making payments are likely to lead to a deteriorating perception about the quality of Ecuador’s credit.”
The government must close a consolidated public sector funding gap that reaches as high as US$3.1bn this year assuming oil prices remain at US$35 a barrel, the bank said.
And while that could drop to US$1.8bn - if as the bank forecasts Ecuador’s oil basket price rebounds to US$41 this year - the Andean country is likely to have to dip into reserves to cover its needs.
“Given lower oil prices and much more limited market access, Ecuador will have to undertake large budget cuts or continue accumulating arrears in order to cover its financing needs,” the bank said. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)