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Posted on April 15, 2011
Ecuadorean President Rafael Correa’s proposed changes to domestic securities rules would cut debt sales by about 20 percent and reduce foreign investment, the executive president of the Quito exchange said.
The government plan to tighten regulations on the sale of bonds guaranteed by companies’ future profits will reduce companies’ access to credit, Monica Villagomez said yesterday in an interview. Fixed-income securities account for about 97 percent of the $5.11 billion traded in Ecuador last year, and local corporate debt yields average about 8 percent, she said.
Ecuador’s government says securities rules need to be rewritten to bolster investors’ confidence and increase trading, as well as ease potential integration with regional bourses. The measure, while making it easier to merge operations with other exchanges, would “break” the corporate debt market by eliminating a segment that accounts for about a quarter of the outstanding debt, Villagomez said.
“This is a problem for us,” Villagomez said at her offices at the Bolsa de Valores de Quito. “It would break the fixed-income market” and “affect companies’ long-term possibilities of financing.”
The proposal will probably be approved by Congress, which is controlled by lawmakers allied with Correa, in July, she said.
Economic Policy Minister Katiuska King said in January the changes seek to create “adequate guarantees” to ensure debt is backed by “real” assets. King and Alvaro Troya, an Economic Policy Ministry adviser who helped draft the bill, didn’t return telephone messages seeking comment.
By securitizing income from a business, the borrower typically grants debt investors many of the rights held by shareholders. The instrument is common in Latin America, according to Santiago Cornejo, chief executive officer of Oblicorp Asesores en Obligaciones Corporativas y Mercado de Capitales Cia. Ltda., a Quito-based bond structuring firm. The method has been used by London-based BAA Ltd., the owner of England’s Heathrow and Gatwick airports, in 2008 to refinance 13.3 billion pounds of debt ($21.7 billion).
Villagomez said the regulations may also stem a rally in Ecuador’s stock market. The IRECU-BVG total return index, which tracks shares of the nation’s 11 largest publicly traded companies on the Quito and Guayaquil exchanges, has risen 2.4 percent this year through yesterday, compared with declines in every major market index in Latin America, according to data compiled by Bloomberg.
The Ecuador index climbed 17 percent in the past 12 months, twice that of Mexico’s IPC index, while Brazil’s benchmark Bovespa index fell 6 percent in the same period through yesterday, Bloomberg data show.
To contact the reporter on this story: Nathan Gill in Quito at firstname.lastname@example.org
To contact the editor responsible for this story: David Papadopoulos at Papadopoulos@bloomberg.net