Saturday, September 23, 2023

El Salvador’s Surprising Debt Buyback


On Tuesday, the president of El Salvador announced plans to extend a voluntary repurchase offer to bondholders whose debts mature between 2023 and 2025.

The finance minister announced later on Tuesday that they will use IMF reserves given last year. They will include a loan from a Central American multilateral lender to fund the operation partially.

With the country’s options narrowing before a January bond maturity of $800 million, President Nayib Bukele has been under pressure to show sound public finances.

His wager on Bitcoin, legal tender in El Salvador alongside the US dollar, limited the country’s access to financing. The IMF froze a loan of more than $1 billion in response to crypto adoption.

According to a tweet by Bukele, the country has more than enough cash to meet its debt obligations.

Traders were offering 74 cents on the dollar for the bond due in January. It is with a yield of 82%, while the rest of the issues hovered around 30 cents, indicating anxiety.

Last week, prices began to rise. They were helped along in part by a note from Morgan Stanley that indicated Salvadoran debt was trading at a price that was too low. Also, the prices were below the majority of potential restructuring scenarios.

The Market Price Buyback

According to a note published by Citi Research on Tuesday, the repurchase procedure is expected to cost approximately $1.7 billion. According to a tweet by Bukele, today, they are sending two bills to Congress. It ensures they have the funds to make a transparent, public, and voluntary purchase offer to all Salvadoran sovereign debt bondholders. This ranges from 2023 to 2025, at whatever the market price is at the time of each transaction. Bukele also stated that the market price would probably increase once we buy all available bonds.

El Salvador’s Bill

In majority votes on Tuesday evening, El Salvador’s unicameral Congress approved both bills. One requested the use of funds from special drawing rights allocated by the IMF to repurchase the bonds for $360 million. The other requested a loan from the Central American Bank for Economic Integration (BCIE) for $200 million.

According to the Central American country’s central bank data, the country’s overall public debt was around $24 billion in March.

Citi analysts expect that the unexpected debt buyback offer will increase the price of short-end bonds.

They wrote that the risks are great, and the situation is still very fluid.

Bukele also mentioned that in six weeks, the repurchase would begin.

They needed more than a billion dollars to finish the project. However, it was not obvious where that money would come from.

Ivan Cruz
Ivan Cruz
Ivan Cruz is a writer for Cryptoconstellation. He has his Masters in Applied Research in Economics & Business. Ivan has been trading crypto for the past 7 years himself and feels it is his duty to bring you all the latest news.

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