Ecuador reentered world capital markets this week after a long absence following its 1999 default by issuing $650 million worth of sovereign bonds. The government of Venezuela had been expected to buy a substantial amount of the issue but ended up acquiring only a small portion.
Reuters reported that Venezuela was expected to buy up to $300 million of the issue. However, El Comercio, a Quito daily, reported that the amount bought by Venezuela was only $25 million.
Earlier this year, Rafael Correa, then the finance minister, resigned after he began negotiations with the Venezuelan government to sell bonds and buy oil distillates. At the time it was reported that he secured Venezuela’s participation in the bond auction but no firm agreement was reached on the latter point. The procurement of oil distillates consumes a substantial portion of the Ecuadorian government budget.
The Financial Times reported that Ecuador needed $500 million to upgrade infrastructure. However, El Comercio reported that most of the funds of the new issue will be used to pay local bondholders.
The Financial Times also warned that, even after incurring this new debt, the country’s budget is underfunded because of unacknowledged financial obligations such as $3 billion owed to the national pension fund and $1 billion in debts to the national oil company by power generators which could be written off by Congress.
Ecuador foreign debt stood at about $17 billion, according to the Inter-American Development Bank.
Deutsche Bank and JP Morgan were the underwriters of the bond issue, El Comercio reported.
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