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Ecuador to Reap $1 Billion Savings From Record Debt-Nature Swap – Bloomberg

  • A lead investor is embattled Swedish pension provider Alecta
  • Deal to generate about $323 million for marine protection
Galápagos tortoises can live to be over 100 years old. (Mortem Elm, Dreamstime/National Geographic)

Natasha White and Esteban Duarte, Bloomberg News

EnergiesNet 05 10 2023

Ecuador has completed the largest debt-for-nature deal of its kind, a transaction that will generate more than $1 billion worth of savings for the government while helping to protect habitats of the Galapagos Islands.galapagos islands

Under the terms of the deal, Ecuador exchanged $1.6 billion of dollar denominated bonds for a new $656 million loan. The country will realize more than $1.13 billion in savings through reduced debt service costs, according to Credit Suisse Group AG, which arranged and structured the transaction. The debt conversion will also generate about $323 million for marine conservation over the next 18 years, according to the Swiss bank.

Swedish pensions provider Alecta is acting as a so-called anchor investor in new bonds attached to the deal, a spokesperson for the company said by email, declining to comment further. A Credit Suisse vehicle issued $656 million in bonds to finance Ecuador’s loan.

Alecta’s risk management systems are under scrutiny after the Swedish regulator last week said it was opening a formal investigation arising from the fund’s failed bets on US banks, including SVB Financial GroupFirst Republic Bank and Signature Bank, which led to billions in losses. Alecta was among the investors in a similar debt-nature swap worth $364 million arranged by Credit Suisse for Belize in November 2021.

Ecuador’s foreign minister, Gustavo Manrique — who worked on the deal in his previous position as environment minister — said that the transaction’s success meant that Ecuador is considering other similar deals. Ecuador’s new loan will carry an interest rate of about 6.975%, said Ecuador Finance Minister Pablo Arosemena at a press conference in Quito.

“Ecuador, alongside its partners, is innovating for conservation, capturing the power and potential of private capital to solve pressing issues facing the environment and society more broadly,” said Ramzi Issa, global head of credit investor products structuring at Credit Suisse, in a statement.

The debt will benefit from a $656 million political risk insurance from the US International Development Finance Corp. and an $85 million guarantee from the Inter-American Development Bank, Credit Suisse said. A group of 11 private insurers is providing more than 50% reinsurance to facilitate the project, the Swiss bank added. The new bond is rated at Moody’s Investors Service’s third highest investment grade, or 16 notches above Ecuador’s foreign-issuer rating.

As part of the swap, Ecuador has committed to allocate $12 million each year toward marine conservation and a further $5.4 million annually to build a conservation endowment fund, expected to reach $227 million by 2041. 

Those funds will be directed by Galapagos Life Fund, a nonprofit set up in April governed by a mix of Ecuadorian ministers and representatives from academia and the local tourism and fishing sectors, according to The Pew Charitable Trusts, which also took part in the deal. They’ll be used to support management, monitoring and enforcement in the waters around the Galapagos Islands, including two marine reserves. Local organizations can also apply for funds for research and marine conservation activities.

The Pew Bertarelli Ocean Legacy Project offered technical support on the deal, alongside the Netherlands-based Oceans Finance Company and Aqua Blue Investments, a company set up by Robert Weary, a former executive of The Nature Conservancy.

— With assistance by Stephan Kueffner and Maria Elena Vizcaino

bloombrg.com 05 09 2023

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