Ecuador has made an interest payment on its bond due 2015 after defaulting on other debt for the second time in a decade, Finance Minister Maria Elsa Viteri said. The bonds rallied to two-month high following the announcement. The payment was made on Tuesday. 

The government, which on Dec. 15 invoked a 30-day grace period on the $650 million bond, has decided to honor the obligation, Viteri said today in Quito. The government views the bond’s legality differently than that of its bonds due 2012 and 2030, Viteri said.

“The order to pay has been sent,” she said. “The economic team has evaluated the conditions of the different bonds and we have considered that the 2015 bonds should be handled differently and we’ve paid them already.”

Ecuador, which has a debt load equivalent to 18 percent of gross domestic product, one of the lowest in Latin America, defaulted on a payment for its 2012 bond in December. President Rafael Correa said he made the decision not to pay after a commission he appointed to audit foreign debt said evidence of criminal violations existed, particularly regarding the bonds due 2012 and 2030.

Viteri said that the government has decided to hire a team of financial advisers and lawyers specialized in finance to help it decide how to present a “global solution” to holders of those two bonds, accounting for a remaining $3.2 billion in commercial debt.

“We will work on a concrete proposal at the general level for the global 2012 and 2030 bonds, which we will present in the coming days,” she said.

Ecuador previously hired U.S. lawyers to advise it on the debt and default issues.

Correa has said that he wants bondholders to accept a steep discount on those bonds. Economy Minister Diego Borja on Dec. 31 said that the government was planning a reverse auction for the bonds, seeking a 70 percent discount.

The yield on Ecuador’s 9.375 percent bonds maturing in 2015 fell 3.94 percentage points to 29.29 percent points, according to JPMorgan Chase & Co. The bond’s price rose 5.5 cents on the dollar to 39 cents, the highest since Nov. 12.

Ecuador’s 12 percent bond due 2012 dropped 0.50 cent to 29.5 cents, while its yield climbed 82 basis points to 56.84 percent The country’s 10 percent securities maturing in 2030 rose 0.50 cent on the dollar to 30.75 cents. They climbed 4.25 cents immediately following the announcement by the finance minister.

Credit: Stephan Keuffner, Bloomberg News Service