Los Ecuadorian bonds were among the biggest gainers in emerging markets on Friday after Credit Suisse Group AG agreed to buy $1.63 billion of debt from holders, a step toward what could be a debt swap transaction for efforts to support nature. largest of its kind.
Notes due 2040 rose 3.4 cents to 35.7 cents on the dollar, the highest level since February 15, according to indicative price data compiled by Bloomberg. Debt due 2030 rose 2.6 cents to 54.8 cents on the dollar.
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The Zurich-based bankh, which UBS Group AG agreed to buy in March, is taking on a large amount of dollar debt due in 2030, 2035 and 2040 at a deep discount to face value, according to a regulatory report. The savings generated by this deal will allow Ecuador to finance certain conservation and sustainability efforts, the bank said when announcing the offer last week.
The notes are still trading in distress on the secondary market, allowing Credit Suisse to pay just $800 million on $1.63 billion of Ecuador’s nominal debt.
“The results of the bidding indicate that the market believes that Ecuador’s bonds are undervalued,” said Katrina Butt, emerging markets economist at AllianceBernstein in New York. “Today’s prices are adjusting to reflect that change in sentiment.”
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A push to oust market-friendly President Guillermo Lasso is also failing in the National Assembly, further helping bonds, Butt said.
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Credit Suisse has a history of participating in these so-called blue bond swaps. He acted as the sole arranger and organizer of the world‘s largest debt-for-nature swap, a $364 million deal he orchestrated in 2021 with The Nature Conservancy, a charity, for Belize. Last year he sealed another $150 million deal for Barbados.
As part of the Ecuador transaction, the nation has received a guarantee from the Inter-American Development Bank backing a new debt instrument that seeks to reduce the cost and risk of refinancing, according to a document describing the potential transaction posted on the website from the Washington-based bank.
LThe IDB surety will be delivered together with a US political risk guarantee. ., says the document.
Ecuador’s bonds are among the worst performing in emerging markets in 2023 so far, resulting in investor losses of 19.5%, according to data compiled from a Bloomberg index.
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