QUITO – Ecuador’s government presented a proposal Monday to repurchase the Global 2012 and 2030 bonds that have been in default since last December at a 70 percent discount.
The government unveiled the proposal simultaneously in Quito, New York and Luxembourg, following up on a vow made months ago to propose a “comprehensive solution” to the external debt problem.
The government will give bondholders until May 15 to present bids, with the final plan to be announced on May 26.
Ecuador is seeking, moreover, to establish a precedent on the problem of the nation’s $10 billion foreign debt, which is equivalent to around 20 percent of the gross domestic product.
President Rafael Correa, a U.S.-trained economist who has referred to the foreign debt as “a noose” that subjugates his country and others in Latin America, created a commission last year to study Ecuador’s foreign liabilities.
The commission concluded that some tranches of the foreign debt, such as the Global 2012 and 2030 bonds, had elements of “illegitimacy” because they had been negotiated or renegotiated illegally.
Quito continues to pay interest on Global 2015 bonds and other obligations.
Ecuador, with financial advice from Lazard Ltd. and legal counsel from London-based Clifford Chance LLP, then began to study how to craft a “comprehensive solution” for the debt it deems illegitimate.
In announcing the offer to bondholders, Finance Minister Maria Elsa Viteri said the government was giving “a fair value” because the 70 percent discount reflected the real price at which the securities should be negotiated.
The offer is based on a modified Dutch auction, which includes the presentation of the price first to creditors, who can then make counter-offers, Viteri said.
The proposal made by Ecuador to its creditors is “fair, it is an offer that really takes into account the responsibility of the Republic of Ecuador on this issue,” the finance minister said.
“You have to understand that at this time, when the global crisis has affected the market for emerging country bonds, Ecuador is making an offer that it considers fair and sovereign,” Viteri said. EFE