Ecuador plunges on potential debt restructuring plan

By Reshmi Basu and Paul Deckelman

New York, Dec. 22 - Emerging market debt was tighter Friday amid light volumes as investors effectively closed out the year.

Traders saw little activity Friday, outside of a slide in Ecuador bonds. That drop came after the country's incoming finance minister Ricardo Patino said that Ecuador could unveil a plan for restructuring its $11 billion of foreign debt by February.

Such a restructuring could very well include a delay in payment or even a default on the bonds, as the new government of Rafael Correa had campaigned against what he called "corrupt and unfair" debt payments imposed upon the South American nation by international lenders such as the World Bank.

A trader said Ecuador's bonds due 2030 were down 12 points at 76 bid, 79 offered, "the big move today [Friday]."

Spreads for the bond due 2012 were spotted 250 basis points wider

One market source noted that overall the country's spreads had widened by around 170 basis points versus U.S Treasuries. That move was exaggerated by the lack of volume in the market, the source said.

Friday's sharp decline followed the announcement Thursday by Patino that officials from president-elect Correa's administration, which takes office on Jan. 15, would meet with bondholders next month to discuss a debt restructuring plan that "may be more like what happened in Argentina" - which included a $95 billion default in 2001, the biggest in history by a sovereign government.

Patino said a plan may be announced by February.

Thin trading

Outside of Ecuador, the trader said there was "such light volume" that nothing really was going on. Benchmark issues, including the Brazil bonds due 2040 were easier.

Other sources noted that the market was mostly range bound, as overall spreads narrowed by two basis points amid very thin trading.

On a dollar basis, the market was slightly softer.

In trading, the bellwether Brazilian bond due 2040 eased 0.10 to 133 bid, 133.15 offered,

The Argentinean discount bond due 2033 gave up 0.50 to 108.50 bid, 109 offered. And the Venezuelan bond due 2027 fell 0.25 to 127.70 bid, 128.25 offered,

Hungary downgraded

In other news, Moody's said it downgraded the credit ratings for Hungary's local and foreign currency government bonds and foreign currency bank deposit ceiling to A2 from A1, citing shortcomings in the country's fiscal austerity program

During the session, the Hungary bond due 2015 gave up 0.10 to 96.585 bid, 97 offered.

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