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ECONOMY | 03-08-2020 15:26

Ecuador wins bondholders’ approval for debt restructuring

Creditors vote in favour of a restructuring plan for US$17.4 billion of debt that will see the South American country's capital and interest payments reduced.

Ecuador has won the support of the majority of bondholders required to restructure US$17.4 billion in international debt, reducing the South American nation’s obligations.

President Lenín Moreno’s government will exchange 10 existing notes maturing between 2022 and 2030 for three new bonds due in 2030, 2035 and 2040. Under the new terms, interest payments will resume at the beginning of next year, while the earliest principal comes due in January 2026. 

“With this, we free up resources for social protection and economic recovery,” Moreno wrote in a tweet.

Moreno wrote that "the required majority" of votes had been secured to finalise the renegotiation. Last month Ecuador announced that it had secured the support of 53 percent of creditors and formally presented its restructure plan on July 20.

The new deal gives Ecuador a five-year grace period for the capital and two years for the interest repayments, while the repayment period has been extended from six to 12 and a half years.

The debt accord gives Ecuador breathing room, well beyond when Moreno’s term ends next May. Still, political opponents have criticised the president and his finance team for not taking a more aggressive approach in the restructuring talks. At the same time, they won praise from key creditors who said Ecuador officials were more reasonable than their counterparts in Argentina, where negotiations have dragged on for months.

The Moreno government faced a late challenge when two creditors – Greenwich, Connecticut-based hedge fund Contrarian Capital Management LLC and Boston-based GMO – asked US District Judge Valerie Caproni in Manhattan to block the restructuring, calling the nation’s tactics “coercive in the extreme.” She denied that request on Friday.

Ecuador’s Finance Ministry said it will extend the deadline for creditors to participate in the debt offer until August 7 to allow for holders who didn’t vote yet. The target date for the bond exchange is August 12. The bond debt Ecuador is restructuring is close to a third of foreign debt. It’s also aiming to reprofile bilateral debt with China, as well as to obtain new Chinese loans for US$2.4 billion, and reach a successor deal with the International Monetary Fund, which supported the bond exchange, to the US$4.2 billion agreement that collapsed amid the Covid-19 crisis.

Ecuador embarked on a debt-sale spree in 2014 to offset a decline in the price of oil, its main export. Mounting financial trouble led the country to sign the pact with the IMF in early 2019. Its debt woes were exacerbated by the pandemic. Ecuador is suffering one of the world’s highest death rates from the virus.

The IMF lent Ecuador US$643 million to help face its health emergency. The country has US$65 billion in public debt. The IMF expects Ecuador's economy to shrink by 6.3 percent in 2020.

– TIMES/BLOOMBERG/AFP

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