Credit Suisse has announced buying Ecuadorian bonds worth $1.6 billion (€1.45 billion) in a debt-for-nature swap that cost the Swiss bank just $644 million. 

With Ecuador in severe financial peril, the bonds were trading well below face value as investors considered non-repayment to be likely. Effectively, Ecuador has now bought its own debt back at a knock-down price via a fresh loan from Credit Suisse. 

And in return, Ecuador's government had pledged to spend about $18 million annually for two decades on conservation in the Galapagos Islands.

The remote islands — home to some of the most unspoiled nature in the world —  are a UNESCO world nature heritage site, and their animal life was crucial to Charles Darwin's research before publishing his theory of evolution.

What is the deal?

Credit Suisse will pay between 53.25% and 35.5% of the issue price for the 2030, 2035 and 2040 bonds. 

The bank had originally offered to spend up to $800 million, but a slump in the price of the bonds recently meant only $644 million was used.

A cheaper-to-service $656 million "Galapagos Bond" maturing in 2041 will replace the old debt. That loan will also be partly underwritten by the Inter-American Development Bank (IDB) and the US International Development Finance Coorporation — meaning Credit Suisse's risk is also contained.

The IDB approved a financial guarantee of $85 million for a debt swap of $800 million of Ecuador's soverign bonds, which could be used to cover the first six quarterly interest coupons if needed.

But why?

The buyer, Credit Suisse, has recently been taken over by Swiss banking giant UBS. The emergency takeover came in a bid to calm the financial markets amid a banking crisis. Briefly it appeared that this might derail the plan, the seeds of which were planted before Credit Suisse's near-collapse.

The Zurich-based bank had been under pressure amid scandals that led to a large-scale withdrawl of funds from angry clients. 

The seller, Ecuador, has been mired in a political crisis as the country's National Assembly seeks to impeach President Guillermo Lasso for alleged embezzlement. Lasso denies the allegations.

This political turmoil triggered a slump in bond prices.

In 2022, Ecuador's public debt amounted to around $66.68 billion, according to the Germany-based data platform Statista.

fb/msh (Reuters, EFE)