By Paul Kilby
NEW YORK, Jan 10 (IFR) - The Republic of Ecuador took center
stage in Latin America's primary market on Tuesday, returning
with its fourth bond deal in less than a year.
The South American country has been quick to take advantage
of upturns in the market to raise much needed funding, and
Tuesday's deal was no exception.
Coming on the heels of Brazilian oil company Petrobras's
successful US$4bn issue on Monday, Ecuador raised US$1bn through
a tap of its 9.65% 2026 at a yield of 9.125%.
Thanks to an order book that reached US$2.25bn, leads
Citigroup were able to squeeze initial price thoughts from low
to mid 9%s to guidance of 9.25% (+/- 1/8).
Hit by the oil rout that began in 2014, Ecuador has leaned
heavily on the international capital markets to help it cover
Including Tuesday's deal, the sovereign has now raised
US$3.75bn through dollar bond sales over the last six months or
With a presidential election in February that could result
in a more market-friendly administration, and crude oil prices
now in better shape, some investors see upside in the credit -
despite its history of defaults.
"With less volatility in the oil price, the sovereign should
have an improved fundamental backdrop," said Sean Newman, a
senior portfolio manager at Invesco.
Newman also thought pricing attractive enough, given that
the 2026 bond was trading at around 105.50 to yield 8.80% before
the tap was announced early Tuesday.
"The new issue premium is close to 40bp," he said. "It is
not screamingly cheap, but it is in the realm that would be
The bond bounced on the break to trade at 104.00-104.625,
according to one trader.
But other accounts take a less sanguine view of the
country's prospects, even if a new government gets a warmer
welcome from the market.
"You will see a tightening associated with the election, but
thereafter the market will begin to realize the government faces
an uphill battle," said Sarah Glendon, head of sovereign
research at hedge fund Gramercy.
After the election the country will likely have to undergo a
painful process of fiscal consolidation at a time when the debt
dynamics are far from ideal.
Glendon said public sector debt-to-GDP stands at around 40%,
but rises to 52% if off balance sheet debt such as arrears to
suppliers is included.
This year Ecuador's gross financing needs are around
US$10bn, half of which is expected to be raised in the external
markets, she said.
"This is not so much a debt stock problem and more of a debt
profile issue," she said.
(Reporting by Paul Kilby; Editing by Marc Carnegie)