Ecuador has sealed a debt-for-nature swap selling a new 'blue bond' of $656 million (Galapagos Bond) with 5.645% coupon. Ecuador sovereign bonds currently yield 17%-26%. It means the country brought back roughly $1.6 billion of debt at a near 60% discount. Ecuador will invest at least $12 million a year into conservation of the Galapagos Islands and an additional $5 million a year into a fund that will last decades.
Excerpts from a Reuters news report:
Ecuador sovereign bonds currently yield from 17% to 26%, but the new bond has an $85 million 'credit guarantee' from the Inter-American Development Bank and $656 million of political risk insurance from the U.S. International Development Finance Corp (DFC), effectively making it less risky. Debt-for-nature swaps have proved successful in Belize, Barbados and the Seychelles in recent years, but Ecuador's deal is by far the largest to date, cutting the country's debt by over $1 billion once the $450 million of total conservation spending is taken into account. The driver has been the remote Galapagos Islands, some 600 miles (970 km) off Ecuador's mainland coast, that inspired Charles Darwin's Theory of Evolution.
While Quito will pocket more than $1 billion worth of savings from the buyback for other purposes, the key appeal has been the environmental benefits and the hope it will be a catalyst for other highly indebted but nature-rich countries.
Conservation funding there now protects a 200-mile (322-km) radius around the archipelago. It has helped revive local tuna and other fish stocks, but also increased catches further out where local fishing is still allowed. The hope is for similar results from a new 11,500-square mile (30,000-sq km) reserve Ecuador set up last year between the Galapagos and Costa Rica's maritime border used as a migratory corridor by sharks, whales, sea turtles and manta rays.
