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<\/a><\/p>\nBy Rodrigo Campos and Marc Jones<\/p>\n
NEW YORK\/LONDON (Reuters) -Ecuador is set to complete the biggest ever debt-for-nature swap, freeing up cash for conservation of the Galapagos Islands, one of the world’s most precious ecosystems, after Credit Suisse bought up three of its bonds.<\/p>\n
A slump in Ecuador’s bond prices triggered by an ongoing political crisis meant the Swiss Bank paid just $644 million for bonds with a face value of $1.6 billion, which will save the country roughly a billion dollars in repayments over 17 years. <\/p>\n
In return, the government in Quito has committed to spend about $18 million dollars annually for 20 years on conservation in the Galapagos, the remote islands whose unique animal life inspired Charles Darwin’s Theory of Evolution.<\/p>\n
The old debt will be replaced with a cheaper-to-service $656 million “Galapagos Bond” maturing in 2041 and insured by the U.S. International Development Finance Corporation. <\/p>\n
It will also carry an $85 million guarantee from the Inter-American Development Bank that could, if needed, cover the first six quarterly interest coupons.<\/p>\n
Moody’s on Friday gave the new debt a provisional investment-grade Aa2 credit rating – much higher than Ecuador’s Caa3 “junk” rating and reflecting that additional security for investors. <\/p>\n
Credit Suisse said on Thursday it had bought just over $1 billion face value of Ecuador’s 2035 bond at a price of 38.5 cents on the dollar, plus $202 million of a 2030 note at a price of 53.25 cents and $420 million of a 2040 bond, bought at 35.5 cents.<\/p>\n
The 2030 note was trading on Friday at around 55 cents on the dollar according to MarketAxess data – a positive sign for holders that there is a new floor on prices, according to Aaron Gifford, emerging markets sovereign analyst at T. Rowe Price.<\/p>\n
\u00a0 \u00a0“It looks like there’s still enough interest in holding the bonds that were being tendered, which suggests to me that a lot of investors still think there’s a lot of upside\u201d,\u00a0Gifford said.\u00a0<\/p>\n
The buyback comes against a backdrop of political turmoil in Ecuador, with the National Assembly seeking to impeach President Guillermo Lasso for alleged embezzlement, which Lasso denies. <\/p>\n
In the works for more than a year, the turbulence was a vital boost for the economics of the deal, which has also survived the troubles of lynchpin lender Credit Suisse, which required an emergency takeover by rival UBS in March.<\/p>\n
UNIQUE SPECIES<\/p>\n
The volcanic Galapagos islands lie 600 miles (970 km) off Ecuador’s coast. Many species that live there, including giant tortoises, marine iguanas and Darwin’s finches, are found nowhere else.<\/p>\n
A number of bondholders have given the buyback deal the thumbs-up, both for its conservation benefits and as a savvy way for the country, which has defaulted a number of times in recent decades, to do some repair work on its finances. <\/p>\n
“Overall, I think it is positive,” said Carl Ross, a veteran of emerging market debt restructurings, including past ones by Ecuador, at asset manager GMO.<\/p>\n
“The bonds have been traded at very depressed prices, so why not take advantage and do some liability management. It’s a good idea for a country that is trying to regain credibility with the market.”<\/p>\n
Tellimer analyst Stuart Culverhouse estimated that more of Ecuador’s bonds could have been bought.<\/p>\n
“The impact in terms of lower debt service and lower debt stock is relatively mild,” Culverhouse said, calculating it was shaving around 10% off the debt stock, which had been just over $16.5 billion beforehand and would now drop to $14.9 billion.<\/p>\n
(Editing by Catherine Evans)<\/p>\n
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