Ecuador’s speedy debt deal underscores Argentina’s hang-ups

Ecuador is pulling out all the stops to reach a quick debt restructuring deal with creditors, while regional peer Argentina argues over every peso. So far, Ecuador is looking the more successful.

President Lenín Moreno’s administration struck an agreement with some of its top bondholders this week ahead of a mid-August deadline, when a moratorium on payments ends. By contrast, Argentina presented a second binding offer to creditors after pushing back its deadline five times. Some bondholders say a deal is still far from guaranteed.

Ecuador’s government brushed aside criticism from political opponents to offer investors more acceptable conditions in its first proposal than Argentina has to date. But it also has some natural advantages over its southern neighbour. Oil-rich Ecuador is restructuring US$17.4 billion in bonds that are held by far fewer investors than the US$65 billion Argentina is renegotiating.

“The deal risk was always lower in Ecuador compared to Argentina,” said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities in New York. “The strategy is pre-negotiating and offering close to final terms. The fast-track time frame for mid-August deadline doesn’t allow for back and forth.”

Ecuador’s bonds due in 2028 have recovered to about 50 cents on the dollar on optimism for a deal, leaving behind Argentine notes of the same maturity, which fetch 42 cents.

Little to lose

Ecuador’s government has little to lose from a quick deal.

Moreno’s approval rating has slumped in 2020, and he doesn’t intend to seek re-election in 2021. Finance Minister Richard Martinez, who has prioritised communication with private creditors since taking office, already has multiple pending impeachment motions against him and was criticised for spending money on a bond payment rather than the coronavirus epidemic that swept Guayaquil.

The nation’s plan, which was released Monday and still needs approval from a share of remaining bondholders, is expected to generate US$1.4 billion in savings this year and free up US$16 billion in the coming decade. Bond payments are expected to stay below US$2 billion per year through 2030.

“The authorities have managed to secure a favorable outcome relatively quickly despite high levels of economic and political uncertainty,” said Tiago Severo, an analyst at Goldman Sachs Group Inc.

Beating Argentina

Argentina made its latest proposal to creditors on Sunday, offering about US$13 billion more in debt payments than its initial proposal announced in April. Still, the nation is struggling to find support.

Just hours after Economy Minister Martín Guzmán said the government doesn’t see space for further modifications on its amended offer, the Ad Hoc and Exchange bondholder groups said they would not accept the terms. While the creditors said the offer was a “step in the right direction,” they wrote that “it falls short of a proposal that can be supported by Argentina’s most significant creditors,” according to a joint emailed statement.

“Despite the improved offer, this is by no means a done deal,” said Morgan Stanley economist Fernando Sedano in New York. “It is a delicate balancing act for the government, one in which we think politics could prevail.”