LatinFinance - March/April 2015 - Supplement - 8

Corporate Financing

Growing options
International bond markets have become a more feasible funding avenue for
Ecuadorian companies
With Ecuador's sovereign bond sale last
year, companies in the Andean country
have a new ﬁnancing option open to
them. The $2 billion issue last June
helped rebuild the sovereign's credibility
with investors, and set a pricing
reference point for other Ecuadorian
borrowers.
Yet for the moment, few private
companies are likely to follow.
Secondary market trading has pushed
the yield on the sovereign's bond to
above 10%. Private issuers would need
to offer a premium to that, making
bond placements costly.
What's more, a 5% tax on capital
outﬂows when paying debt incurred
abroad makes international borrowing
unattractive. With a small institutional
investor pool, banks are left to meet
private-sector ﬁnancing needs.
Given the hit taken by petroleum
prices, the government of President
Rafael Correa has scrambled to
keep liquidity streaming in, both for
state projects and for local banks.
Agreements with private companies and
sovereigns have maintained substantial
capital ﬂows in the energy and
infrastructure sectors.
With oil counting for more than half
of export revenues in this OPEC-member
state, the strategy is a long-term one.

"We cannot be scared away by the
low prices today," says Non-Renewable
Resources Minister Pedro Merizalde.
"The price is cyclical and it will recover,
because the world needs energy."
Not all oil ﬁeld partners are so
sanguine. The government suffered a
reversal in early February when Canada's
Ivanhoe Energy announced that it
would terminate its service contract
with Ecuador's upstream oil company,
Petroamazonas, for Block 20, which
holds heavy crude similar to that found
in Canada's oil sands.
To entice private company and
consortium participation in mature oil
ﬁelds, Petroamazonas launched a new
strategy in the ﬁnal months of 2014.
The state signed ﬁve-year contracts
with companies ranging from US ﬁrm
Halliburton to China's Sinopec totaling
$2.1 billion in investment. In return for
contracts to explore 17 blocks, Ecuador
agreed to pay partners for oil produced.
This helped bolster oil production
to 570,000 barrels a day, up from a
reported 526,000 in 2013.
Petroamazonas signed a similar,
smaller deal in mid-February to keep
oil ﬂowing in Ecuador's Napo province,
which averaged just 330 barrels a day
last year. The $146 million agreement
was inked with a consortium formed by

8 A Supplement to LatinFinance - March/April 2015

a local company, Edinpetrol, and Belarus'
Belorusnef.
Investment in oil production is
expected to reach $5 billion in the
years remaining in this decade.
Petroamazonas' 2015 investment will be
around $500 million.
Markets beckon
Investment needs could ramp up as
Ecuador develops the controversial
Ishpingo-Tambococha-Tiputini (ITT)
Block. The three oil ﬁelds in the project
have an estimated 920 million barrels
of crude, or about 20% of the country's
proven reserves.
But ITT abuts an ecologically delicate
area. President Correa's government had
launched an innovative protection plan
for the blocks, offering to leave oil in the
ground if the international community
would provide compensation worth $3
billion. When money did not materialize,
plans began to move ahead on two of
the three ﬁelds last year. The cost of oil
development there varies widely, with
some estimates putting the price tag
close to $6 billion.
Petroecuador, which is in charge of
the country's downstream production,
including pipelines and reﬁneries, could
issue paper to cover some of the costs of
a planned 200,000 barrel-a-day reﬁnery
LatinFinance - March/April 2015 - Supplement

Table of Contents for the Digital Edition of LatinFinance - March/April 2015 - Supplement
