Ecuador has agreed to pay millions of dollars every year for the next 20 years to maintain one of the world’s most valuable ecosystems after a Swiss bank purchased bonds for less than half their initial value.
Credit Suisse has announced the purchase of Ecuadorian notes totaling $1.6 billion (€1.45 billion) in a debt-for-nature swap for $644 million.
With Ecuador in dire financial straits, the bonds were selling far below face value as investors expected non-repayment. Ecuador has effectively purchased its own debt at a discount thanks to a new loan from Credit Suisse.
In exchange, Ecuador’s government promised to spend approximately $18 million per year for the next two decades on conservation in the Galapagos Islands.
The secluded islands, home to some of the world’s most pristine ecosystems, are a UNESCO World Heritage Site, and its animal life was critical to Charles Darwin’s studies prior to publishing his theory of evolution.
For the 2030, 2035, and 2040 bonds, Credit Suisse will pay between 53.25% and 35.5% of the issuance price.
The bank had initially offered to spend up to $800 million, but a recent drop in bond prices meant that just $644 million was utilised.
The existing debt will be replaced by a $656 million “Galapagos Bond” maturing in 2041. The Inter-American Development Bank (IDB) and the US International Development Finance Corporation will also contribute to the loan, limiting Credit Suisse’s risk.
The IDB authorised a $85 million financial guarantee for a debt swap of $800 million of Ecuador’s sovereign bonds, which could be used to cover the first six quarterly interest coupons if necessary.
Credit Suisse, the buyer, was recently acquired by Swiss financial powerhouse UBS. The emergency takeover was carried out in order to calm financial markets in the midst of a banking crisis. For a brief moment, it appeared that this would derail the strategy, the seeds of which had been sowed before to Credit Suisse’s near-collapse.
The Zurich-based bank had been under fire following incidents that resulted in large-scale withdrawals of funds from irate customers.
Ecuador, the seller, is embroiled in a political turmoil as the country’s National Assembly considers impeaching President Guillermo Lasso for alleged embezzlement. Lasso rejects the charges.
Bond prices fell as a result of the political upheaval.
According to the German data platform Statista, Ecuador’s state debt will be around $66.68 billion in 2022.
