Ecuador’s Rating Raised by S&P on China Loans, Oil Proceeds

Ecuador’s credit rating was boosted by Standard & Poor’s for the first time in two years as loans from China and higher crude oil prices buoyed the South American government’s finances and economic outlook.

S&P raised the nation’s credit rating to B from B-, five levels below investment grade, according to a statement from the ratings company, which said the outlook is stable.

“The upgrade reflects the perceived improvement in the government’s willingness, as well as capacity, to service its debt due to improved financing options and higher oil production and economic growth prospects,” Richard Francis, an analyst at S&P in New York, wrote today in the statement.

Ecuador, a member of the Organization of Petroleum Exporting Countries, has relied on rising oil prices and tax increases to fund higher government spending while drawing on loans from China and the Inter-American Development Bank to cover shortfalls since defaulting on $3.2 billion of international bonds in 2008 and 2009.

A history of default and inconsistent economic policies remain “credit constraints,” according to S&P.

The yield on Ecuador’s benchmark dollar bonds due in 2015 dropped three basis points, or 0.03 percentage point, to 9.81 percent at 3:29 p.m. in Quito, according to data compiled by Bloomberg. The price rose 0.08 cent to 98.72 cents on the dollar.

Yields in 2012

Bond yields have increased 54 basis points this year while those on similar maturity Venezuelan bonds have decreased 239 basis points to 10.38 percent over the same time period, Bloomberg data show. This week, Ecuador’s yields reached their highest level since October, climbing to 10.27 percent, as concern that Europe’s debt crisis will derail a global economic recovery helped push oil prices lower.

Ecuador, which forecasts a $4.23 billion budget deficit this year, or 16 percent of total spending, is rated by Moody’s Investors Service at Caa2 and at B- by Fitch Ratings. The Finance Ministry expects the economy to expand 5.35 percent this year, according to the 2012 budget.

President Rafael Correa said in February the country is negotiating a $1.7 billion loan from China and expects to receive the first payment by August. Since the default, the government has borrowed about $7.25 billion from China, according to Fitch.

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