By Davide Scigliuzzo
NEW YORK, Dec 8 (IFR) - Ecuador returned to the US dollar bond market Thursday for the third time this year, raising US$750m through a new 10-year note following a recent rally in oil prices.
The country priced the new issue at par to yield 9.65%, which was well inside initial price thoughts of low 10% area, according to market sources.
The deal, rated B by S&P and Fitch, will provide much needed funds for the oil-exporting nation, which plunged into recession last year.
One portfolio manager said the yield initially offered - which was well above the 9.1% at which the country’s 2022s were trading - was justified by Ecuador’s weak fundamentals and troubled history.
“They have got to be willing to pay quite a lot,” he told IFR soon after the deal was announced.
“This is a country that has gone into recession, issued more than they said they would and ... is going to have a significant budget deficit (this year).”
Strong demand from investors, who placed around US$2.4bn in orders for the trade, allowed sole lead manager Citigroup to aggressively tighten yield to final guidance of 9.75% plus or minus 10bp, pricing at the tight end.
Ecuador has already raised US$2bn in the US bond market this year. It sold a US$1bn 10.75% 2022 bond in July, which it tapped again in September for another US$1bn.
Higher crude prices have helped reduce Ecuador’s financing costs in recent months, with the spread on its 2022s tightening to 740bp over Treasuries on Thursday from around 960bp at the end of July.
But investors are also keeping a cautious eye on the nation’s political developments.
“The bounce in oil helped, but we have got elections next year and you have got pretty binary outcomes depending on the winner,” said Kevin Daly, a portfolio manager at Aberdeen Asset Management.
He said that a victory by Lenin Moreno, an ally of leftist President Rafael Correa, would likely see Ecuador remain dependent on financial markets for funding, while a victory for the opposition could lead to market-friendly reforms and a deal with the International Monetary Fund.
After repudiating some of its debt in 2008, Ecuador worked to repair relations with investors and made a landmark return to the international bond markets in 2014. It has since issued bonds with maturities as long as 2024.
Last month, rating agency Moody’s affirmed Ecuador’s B3 rating, saying it expects subdued GDP growth, a gradual decline in fiscal deficits and a steady balance of payments. (Reporting by Davide Scigliuzzo; Editing by Shankar Ramakrishnan, Marc Carnegie and Natalie Harrison)