DEAL REVIEW: Reward trumps risk in new Ecuador bond deal
By Davide Scigliuzzo and Paul Kilby
NEW YORK, June 18 (IFR) - The thirst for yield among investors trumped worries about Ecuador's unhappy record of debt defaults this week as the country sold its first international bond in nearly a decade.
Just six years after it voluntarily defaulted on its obligations, Ecuador on Tuesday sold a larger-than-expected US$2bn 10-year bond on the strength of US$5.1bn in orders.
The size of the order book underscored the willingness of investors to overlook risk at a time when a yield close to 8% is extremely hard to find.
"Guys are looking to pick up extra basis points," said one syndicate banker not on the deal, "and that helps sovereigns like Ecuador."
The sovereign, rated B/B, priced the transaction at par to yield 7.95%, inside official guidance of 8% (plus or minus 12.5bp) and tight to initial price thoughts of low 8%.
While it did not come with the double-digit yields seen on the region's other two high-beta sovereigns, Argentina and Venezuela, it did pay a slight default premium to other Double B and Single B names.
The 7.95% finish offered a pick-up to the low 4% to high 6% yields seen on comparables including Guatemala (Ba1/BB/BB+), Paraguay (Ba2/BB-/BB-), Bolivia (Ba3/BB/BB-), Honduras (B3/B) and Jamaica (Caa3/CCC+/B+).
To find the pricing level, leads Citigroup and Credit Suisse were heard taking the 5% yield on the Ecuador's existing 2015s and extrapolating fair value of around high 7s on a new 10-year. Continuación...