Goldman Sachs published an economics report on January 10 informing the markets that it was “re-initiating coverage of the Ecuadorian” economy.
Then, less than two weeks later, the investment bank repackaged a $400 million social housing bond for the country in an innovative structure that enabled the sovereign to price at a lower cost than its existing benchmarks.
The Inter-American Development Bank (IADB) provided a guarantee for $300 million of B-/B- rated Ecuadorian bonds, with a 15-year term and a 7.25% coupon – a much lower comparable yield than the sovereign’s longest-dated bond, a 9.5% 2030 issue, which is trading with a yield of around 10.65%.
Goldman packaged the bond into two tranches: a single- A rated secured tranche offering a 2.6% coupon and a yield of 3.75%, and a single-B unsecured zero coupon tranche that was sold at a deep discount of 65.191 to yield 12.25%.
Challenges
Euromoney’s sister publication, Global Capital, reported that the bonds’ lower funding costs were based on investors’ expectations of capital appreciation.
And while that isn’t an outlier view – many investors think Ecuador has large potential upside for better valuations, if the country continues to work with the IMF of on its proposed pro-market reform agenda – the country still faces notable challenges.