Ecuador Bonds Rally on $4.2 Billion IMF Deal to Serial Defaulter

(Bloomberg) -- Ecuador’s benchmark bonds soared to a six-month high after President Lenin Moreno’s government secured a $4.2 billion loan package from the International Monetary Fund.

The aid is intended to support the OPEC nation over the next three years as it tries to curb spending and revive sluggish growth. Including the IMF package, Ecuador is set to receive more than $10 billion in loans from multilateral lenders, Moreno said Wednesday in a televised address to the nation.

“Thanks to the firm decisions I have made, we are not what today is Venezuela,” Moreno said.

Moreno and Finance Minister Richard Martinez have tried to rein in spending, including a 10 percent cut to staff at state-owned oil companies Petroamazonas and Petroecuador, after the nation slid into a recession in 2016 following an oil rout. Ecuador, which has paid back just one bond in the last two centuries, had to offer 10.75 percent on the $1 billion of dollar bonds it sold last month -- one of the steepest yields for a sovereign since the global financial crisis.

"We’ve been long Ecuador, and the upside from the rest of the international financial institutions is a pleasant surprise," said Edwin Gutierrez, a London-based money manager at Aberdeen Standard Investments, who bought the new bond.

The agreement requires the approval of the IMF’s directors. The other lenders are the World Bank, Inter-American Development Bank, the Andean Development Corporation, the European Investment Bank, the Latin American Reserve Fund and the French Development Agency, Moreno said.

Ecuador bonds have surged 8.4 percent this year amid a broad rally in riskier assets. The economy will grow 0.6 percent in 2019, according to median estimates of analysts surveyed by Bloomberg, down from 1.1 percent last year.

"This will substantially reduce Ecuador’s financing needs," said Delphine Arrighi, a London-based money manager at Merian Global Investors, who’s overweight on the nation’s debt. The loan deal, "plus strong oil prices, is all supportive."

During a briefing in Quito, the IMF’s Western Hemisphere Director Alejandro Werner said that the funding would allow Ecuador to abstain from tapping financial markets over the deal’s three-year lifetime. Nonetheless, the government could still decide to sell bonds to manage its liabilities, according to Deputy Finance Minister Santiago Caviedes.

To contact the reporters on this story: Stephan Kueffner in Quito at skueffner1@bloomberg.net;Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Matthew Bristow at mbristow5@bloomberg.net, ;Rita Nazareth at rnazareth@bloomberg.net, Robert Jameson, Philip Sanders

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