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Ecuador, Calling Debt `Illegitimate,' May Repay 40% (Update3)
By Lester Pimentel
Jan. 18 (Bloomberg) -- Ecuador's economy minister told a group of investors who visited his office yesterday that much of the country's foreign debt is ``illegitimate'' and that the government may repay only 40 percent of it, Citigroup Inc. said.
Ricardo Patino, who took office with President Rafael Correa on Jan. 15, told the investors in Quito that the debt is ``a burden on Ecuador that inhibits growth'' and takes away from social spending, Citigroup, which arranged the meeting, said in a note to clients.
``He argued that for the first time in many years investors will be dealing with a finance minister determined to defend and prioritize social spending over external or domestic debt servicing,'' Citigroup analysts Don Hanna and Jose Wynne wrote in the report.
Patino's debt reduction estimate is the first indication the South American country has given on the amount of money it's looking to shave off its debt servicing. Correa has been saying for months that he planned a restructuring of the country's $11 billion foreign debt, without providing specifics.
Ecuador's 10 percent dollar bonds due in 2030, the government's benchmark foreign securities, tumbled today, driving the yield up 130 basis points, or 1.3 percentage points, to 14.32 percent.
The bond's price, which moves inversely to the yield, sank 7 cents on the dollar to a two-year low of 71 cents at 3:25 p.m. in New York, according to JPMorgan Chase & Co. The price has dropped 26 cents since Correa, a 43-year-old economist, won election on Nov. 26.
`Hurt the Country'
The average yield spread on Ecuadorean bonds over similar- maturity U.S. Treasuries widened 1.35 percentage points to 9.32 percentage points today, according to JPMorgan data.
Brooke Berard, a spokeswoman at Citigroup, declined to comment. Calls to Hanna, Citigroup's head of emerging-market strategy, and to Wynne, an economist, were referred to the bank's media relations office.
Ecuador's Economy Ministry confirmed in a statement that Patino met with bondholders yesterday. The ministry said he listened to investors, gave a general outline of the government's plans and explained how the government's debt management has ``hurt the country'' since the 1970s. A ministry spokesman declined to provide additional comment.
Ecuador, South America's fifth-largest oil producer, last defaulted amid an economic recession in 1999. The government's benchmark 10 percent dollar bonds were issued in a restructuring of that defaulted debt in 2000.
Patino, 52, told the investors yesterday that a restructuring that would cut the value of the country's foreign bonds by 60 percent is just a ``possibility,'' according to the Citigroup report.
``He was careful to say that this was not a formal offer, but rather a possibility, and one that did not necessarily coincide with the views of President Rafael Correa,'' Citigroup said.
http://www.bloomberg.com/apps/news?p...3J4&refer=home
Ecuador, Calling Debt `Illegitimate,' May Repay 40% (Update3)
By Lester Pimentel
Jan. 18 (Bloomberg) -- Ecuador's economy minister told a group of investors who visited his office yesterday that much of the country's foreign debt is ``illegitimate'' and that the government may repay only 40 percent of it, Citigroup Inc. said.
Ricardo Patino, who took office with President Rafael Correa on Jan. 15, told the investors in Quito that the debt is ``a burden on Ecuador that inhibits growth'' and takes away from social spending, Citigroup, which arranged the meeting, said in a note to clients.
``He argued that for the first time in many years investors will be dealing with a finance minister determined to defend and prioritize social spending over external or domestic debt servicing,'' Citigroup analysts Don Hanna and Jose Wynne wrote in the report.
Patino's debt reduction estimate is the first indication the South American country has given on the amount of money it's looking to shave off its debt servicing. Correa has been saying for months that he planned a restructuring of the country's $11 billion foreign debt, without providing specifics.
Ecuador's 10 percent dollar bonds due in 2030, the government's benchmark foreign securities, tumbled today, driving the yield up 130 basis points, or 1.3 percentage points, to 14.32 percent.
The bond's price, which moves inversely to the yield, sank 7 cents on the dollar to a two-year low of 71 cents at 3:25 p.m. in New York, according to JPMorgan Chase & Co. The price has dropped 26 cents since Correa, a 43-year-old economist, won election on Nov. 26.
`Hurt the Country'
The average yield spread on Ecuadorean bonds over similar- maturity U.S. Treasuries widened 1.35 percentage points to 9.32 percentage points today, according to JPMorgan data.
Brooke Berard, a spokeswoman at Citigroup, declined to comment. Calls to Hanna, Citigroup's head of emerging-market strategy, and to Wynne, an economist, were referred to the bank's media relations office.
Ecuador's Economy Ministry confirmed in a statement that Patino met with bondholders yesterday. The ministry said he listened to investors, gave a general outline of the government's plans and explained how the government's debt management has ``hurt the country'' since the 1970s. A ministry spokesman declined to provide additional comment.
Ecuador, South America's fifth-largest oil producer, last defaulted amid an economic recession in 1999. The government's benchmark 10 percent dollar bonds were issued in a restructuring of that defaulted debt in 2000.
Patino, 52, told the investors yesterday that a restructuring that would cut the value of the country's foreign bonds by 60 percent is just a ``possibility,'' according to the Citigroup report.
``He was careful to say that this was not a formal offer, but rather a possibility, and one that did not necessarily coincide with the views of President Rafael Correa,'' Citigroup said.
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