Ecuador Reaches Interim Debt Deal With Bondholders

Ecuador reached a provisional agreement restructuring deal with holders of about half of its sovereign bonds, which, if officially approved, would give the country crucial breathing space as it tries to sort out its finances and deal with the coronavirus.

The ad falls like Argentina is looking for a similar, albeit much larger, deal with its bondholders on tougher terms.

It also comes as Ecuador discusses additional funding with the IMF and Chinese banks. The IMF welcomed Monday’s announcement and the government in Quito said it hoped to reach a deal with the fund by mid-August.

Ecuador has a total debt of less than $58.4 billion, more than half of the annual gross domestic product. Almost a third, $17.4 billion, is due to bondholders.

Monday’s deal would give it partial debt relief of $10 billion over the next four years and another $6 billion between 2025 and 2030.

The agreement provides that bondholders will accept a 9% discount on principal repayments, which will save Ecuador more than $1.5 billion.

The country would have much more time to repay its debt. He would not be expected to make any principal payments until 2026 or pay anything this year and would only be obligated to pay modest interest payments of $79 million next year. Some of its obligations would be pushed back to 2040.

Richard Martínez, Ecuador’s finance minister, told a news conference the deal was a reward for Ecuador’s responsible action in March when it paid out $341 million to bondholders, as many critics argued he should default and use the money to fight coronavirus instead.

“No one invests in a country that does not meet its obligations,” said the minister.

The government described the bondholders who had agreed to the deal as “significant international investors”, including funds managed or advised by Ashmore, BlackRock and AllianceBernstein.

Ecuador will now move forward with a consent solicitation in the hope that creditors will formally accept it. It would take a two-thirds majority for most bonds and a three-quarters majority for one maturing in 2024.

One bondholder, speaking to the Financial Times on condition of anonymity, warned that if the government pursues with only certain creditors, talks with others could become “unnecessarily hostile”.

The country’s bond maturing in 2028 rose to 51 cents on the dollar on Monday, from a low of 20 cents on the dollar hit in March.

Although Monday’s announcement gives the government some breathing room, it does not involve new funds. For this, Ecuador is turning to the IMF and Chinese banks.

The county had $4.2 billion IMF lending program in place until early this year, but the pandemic and a sharp drop in oil prices prevented it from meeting its demands. Both parties agreed to drop the deal and try a new one.

Ecuador is one of the poorest countries in South America and the only one that uses the dollar as its official currency, which limits it in what it can do to solve its financial problems.

It was also one of the countries most affected by the coronavirus, especially in March and April. in the port city of Guayaquil.

The Andean nation faces presidential elections early next year. Holder Lenín Moreno said he would not show up. A candidate representing the interests of leftist former president Rafael Correa is almost certain to run.

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