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Ecuador finance ministry denies involvement in tender offer launched by Credit Suisse
Tender Offer (Bonds and Shares)
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Strategic Considerations: A tender offer for Ecuador bonds took market participants by surprise yesterday. Analysts speculated that the announcement is part of the much-awaited debt-for-nature swap to fund conservation efforts in the Galapagos Islands. Some also questioned the timing, as President Guillermo Lasso is currently facing impeachment proceedings in the National Assembly. The country’s Ministry of Finance denied the government is involved in the transaction.

  • The indenture governing the 2030s, 2035s, and 2040s does not allow Ecuador to redeem the notes 
  • Ecuador first announced a debt swap in November 2021 

The Republic of Ecuador is not involved in the tender offer launched by Credit Suisse yesterday (26 April) to repurchase the country’s notes, a spokesperson for the Ministry of Finance said. 

“It is a private transaction by Credit Suisse, which is why we cannot talk about [it],” according to the spokesperson. The bank commenced a tender to purchase for cash up to USD 800m in step-up coupon notes due 2030, 2035 and 2040, as reported.  

The offer expires on 4 May and will settle on 9 May. 

The government denying it is involved “leaves us with many questions,” a Quito-based economist said. The indenture governing the 2030s, 2035s, and 2040s does not allow Ecuador to redeem the notes, though the country could purchase the securities in the secondary market. 

The tender is subject to “the satisfaction or waiver of a new financing condition,” as also reported. This involves Ecuador signing a new term facility agreement with Credit Suisse International, per the tender offer documents. But even if the new financing condition is satisfied, the bank is not under any obligation to move ahead with the offer.

The offer price will be determined via a modified Dutch auction, as reported. The bid ranges are 48.25 to 53.25 for the 2030s, 33.5 to 38.5 for the 2035s, and 30.5 to 35.5 for the 2040s, according to the tender documents. The bank is offering too low of a price, said an investor who is not participating in the auction. The bonds targeted by the tender are trading inside the price range of the auction, per Cbonds.

“There is significant firepower on the USD 800m against default-level bond prices of 32-50,” Siobhan Morden, Latin America fixed income strategist at Santander, wrote in a note yesterday.  

Credit Suisse is making the offer “as part of a broader refinancing operation to channel savings and promote certain conservation and sustainability efforts” of Ecuador, as reported. Analysts speculate that this refers to the country’s long-awaited debt swap involving a blue bond to fund conservation efforts in the Galapagos Islands.  

The Swiss bank is likely to continue receiving coupons on the bonds it buys back, but Ecuador will have money to invest in the marine reserves once the blue bond is issued, the investor said. The country will save cash on interest payments, the investor added. 

A Credit Suisse spokesperson declined to comment on the blue bond or the timing of the tender. They also did not respond to a request for comment on Ecuador’s possible involvement in the transaction.

The country announced in November 2021 that it would use a debt swap to fund the expansion of the marine reserve in the Galapagos, as reported. In January 2023, Finance Minister Pablo Arosemena told local news outlet Primicias that the government would issue blue bonds this year to buy back part of its debt at low prices and transfer the savings from the transaction to a trust for the conservation of the Galapagos. 

Though the drop in interest expenses from the buyback is likely to be small, canceling the debt could help the government reduce the notes’ principal payments starting in 2026, the economist said.

Belize was the first country in Latin America to cut its debt in exchange for marine conservation commitments, as reported. Credit Suisse, The Nature Conservancy, and the US Development Finance Corporation were involved in the transaction carried out in 2021.

Impeachment proceedings against Lasso

The Quito-based economist, however, characterized the transaction as “ill-timed,” with President Guillermo Lasso currently facing impeachment proceedings in the National Assembly.

There could be “a lot of political noise” if the refinancing operation is not done transparently and the government does not demonstrate the benefits to the population, the economist said.

Given the political volatility, it's likely that Credit Suisse already has most of the blue bond transaction aligned to avoid putting its own balance sheet at risk, said the investor.

The political situation in Ecuador “is very fluid,” said Cristobal Samardzich, a senior analyst for Latin America at The Economist Intelligence Unit at a webinar today (27 April). “Our base case scenario is that the [impeachment] vote will not pass,” he said, citing the diverging interests of opposition parties. Some legislators are willing to trade their vote for benefits, while UNES, the largest party in the National Assembly, with 48 out of 137 seats, is now pushing for early elections instead of an impeachment, which would result in Vice President Alfredo Borrero taking office, Samardzich said.

The period during which both Lasso and his accusers could submit evidence to the National Assembly ended yesterday, according to local news reports. The legislature’s oversight committee has until 6 May to write a report recommending whether to impeach the president.  

Legislators need 92 out of 137 votes in the National Assembly to oust Lasso, as reported. And while the block supporting the impeachment appears to be wavering, the outcome remains unpredictable, the local economist said. “The only certainty is that, if Lasso survives, he will face permanent instability.” 

by Carla Dager and Maria Fernanda Blaser, Guayaquil and Sao Paulo 

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