Thursday, May 28, 2020
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ECONOMY | 21-05-2020 14:02

BlackRock, Ashmore form Ecuador creditor group as swaps pay out

Ecuador is slashing spending and negotiating a new loan package with the IMF, while money managers line up together to present a united front for restructuring talks.

Ashmore Group Plc and BlackRock Inc are joining together to present a united front for restructuring talks in yet another emerging market.

The money managers, which are already collaborating in Argentina and Lebanon, also plan to work together in negotiations with Ecuador, according to people with direct knowledge of the matter. A team at White & Case LLP, including veteran restructuring specialist Ian Clark, will act as legal advisers, the people said, who requested anonymity because the talks are private.

A separate group led by UBS Group AG and Broadspan Capital LLC is also recruiting mutual funds and hedge funds that hold Ecuador bonds, they said.

The talks with Ecuador could prove challenging as the South American nation grapples with a unique set of problems. Battling one of Latin America’s worst Covid-19 outbreaks and a crash in crude oil prices, the government is unable to raise spending because it has no currency of its own and is effectively locked out of international credit markets. As a result, it has slashed spending while negotiating a new loan package with the International Monetary Fund.

“It’s a binary situation,” said Oren Barack, the managing director of fixed income at New York-based AGP Alliance Global Partners. “Either the country makes the necessary adjustments to resume payments later this summer or the loss of revenue from oil and spending to fight coronavirus and stimulate the economy prevents them from getting on a sustainable path.”

Spokespeople at BlackRock, White & Case, Broadspan and UBS declined to comment, while an official at Ashmore didn’t respond to requests for comment.

 

Creditors gave officials in Quito some breathing room last month when they supported a deal to suspend coupon payments on the nation’s foreign debt until mid-August. Ecuador’s dollar bonds due in 2028 have jumped to 35 cents on the dollar from as low as 20 cents in late March. The nation’s notes have rallied the second-most among developing nations this month, trailing only Angola.

Still, the payment delay triggered Ecuador’s credit-default swaps, generating payments of about US$60 million.

The country’s Congress passed US$4 billion in spending cuts this week, just as the nation’s fiscal needs mount. With few borrowing options open to them, the government must reach an accord with the IMF soon and bondholders later in the year. On Tuesday, the Inter-American Development Bank approved a US$250-million loan to help Ecuador with its pandemic response.

“It’s a dollarised economy,” said Siobhan Morden, head of Latin American fixed income strategy at Amherst Pierpont Securities in New York. “You can’t spend what you don’t have. It’s their reality.”

by Ben Bartenstein, Bloomberg

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