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Ecuador Prepares to Return to Bond Market

Ecuador Prepares to Return to Bond Market

Posted by Juan Gavasa on June 09, 2014

The Republic of Ecuador is preparing to return to the bond market for the first time since the country defaulted in 2008, taking advantage of robust demand for emerging-market debt in a low-yielding world.

The default-prone sovereign, rated Caa1 by Moody's Investors Service and B by both Standard & Poor's and Fitch Ratings, is due to meet investors in London, Boston, Los Angeles and New York, via a three-day roadshow hosted by Credit Suisse CSGN.VX +1.74%  and Citigroup C +0.62%  that commences on Tuesday, bankers involved said.

A U.S. dollar bond is expected to follow, but no indication has been given of the timing. A transaction would likely provide a severe test of investors' appetite for risk, just five-and-a half years after the country defaulted on $3.2 billion in foreign debt that it argued was illegal and illegitimate.

Other emerging-market countries, however, such as Turkey, Hungary and Mexico, have already tapped the market in recent months, showing that robust investor base for more mainstream emerging-market debt is in place.

According to Thomson Reuters' data, emerging-market borrowers raised over $100 billion worth of debt in the first quarter of 2014, despite geopolitical tensions capping activity, especially in parts of Eastern Europe. Not all investors are jumping through hoops to take part in a possible deal, though.

"Ecuador's past record of defaults makes us very wary and I don't think taking part in the deal would be high on our radar," said Colm McDonagh, head of emerging-market fixed-income at Insight Investment in London.

"There is a price for different types of risk and there will always be demand for a deal like this. But as far as we are concerned, Ecuador's track record of honoring its debt obligations makes it hard for us to determine the appropriate yield level where we would be comfortable holding those bonds," he said.

The possibility of the country tapping global investor for funding was already flagged in April. Then the country's president said in a television interview that about $700 million could be issued this year. Ecuadorean officials have spoken various times over the last three years about a possible debt issue.

One year after Ecuador's debt default, in 2009, it bought back about 93% of the $3.2 billion in defaulted debt at 35 cents on the dollar. That left an estimated $95.37 million of defaulted bonds that would have matured in 2012, with $194.4 million falling due in 2030.

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