Ecuador Offers $1 Billion of Bonds at Highest Coupon Since 2000

  • Nation last sold $750 million in 5-year bonds in May 2015
  • Ecuador’s GDP is set to contract 3.3% in 2016 amid drop in oil

Ecuador is offering $1 billion of bonds in the overseas market with the highest coupon since 2000 as the nation seeks to plug a financing gap following lower oil prices.

The South American nation is selling five-year dollar notes to yield around 10.75 percent, according to a person familiar with the matter, who is not authorized to speak publicly and asked not to be identified. Citigroup Inc., which managed Ecuador’s last offering in May of last year, is handling the sale. This would mark the fourth time the nation returns to the market after defaulting on $3.2 billion of notes in 2008 and 2009.

"The market is providing a good window for Ecuador to tap the market," said Juan Lorenzo Maldonado, an economist with Credit Suisse Group AG. The country has to cover a financing gap and investors’ appetite for yield has pushed Ecuador’s borrowing costs to a one-year low despite a recent drop in oil prices, he said.

The average yield on the country’s debt fell to 9.64 percent on Monday from 14.73 percent at the end of last year, according to Bloomberg’s USD Emerging Market Ecuador Sovereign Bond index. Its bonds due in 2024 yield 10.1 percent, down from a high of 16.24 percent in January.

President Rafael Correa had mentioned the possibility of issuing debt after the oil-exporting country suffered its worst earthquake in decades in April. The nation is also heading for its worst recession since at least 1999 amid lower crude prices. The median forecast of economists surveyed by Bloomberg is that Ecuador’s gross domestic product will contract 3.3 percent this year.

The last time Ecuador sold bonds with a yield above 11 percent was in 2000, when it raised $1.25 billion in notes due in 2012. Its last sale last year was for $750 million in five-year notes at 8.5 percent.

“It’s a rare double digit coupon,” said Richard Segal, an analyst at Manulife Asset Management. “While public debt has been relatively low, 32.5 percent of GDP at the end of last year, its financing requirements this year are quite high."

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