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Bukele Leads Effort to Slash National Debt via Dollar Bond Buyback

Bukele Leads Effort to Slash National Debt via Dollar Bond Buyback

Apr 9, 2024

Bukele Leads Effort to Slash National Debt via Dollar Bond Buyback

El Salvador is set to make its return to the international debt market after nearly four years, as the government looks to repurchase some of its existing bonds from global investors. With BofA Securities facilitating the process, calls to pitch fixed-income money managers began on Monday. The country is considering issuing a macro-linked dollar bond that would pay down over time, although the details of the talks remain private.

This move comes amid a growing appetite for high-risk emerging-market bonds, which has seen the extra yield demanded by investors for holding El Salvador’s debt over US Treasuries shrink by 70 basis points since early 2024, now standing at 6.1 percentage points, based on JPMorgan Chase & Co. data.

President Nayib Bukele has been garnering investor confidence since mid-2022 through a series of financial maneuvers, including two dollar bond buybacks, a pension debt exchange, and the refinancing of local short-term obligations, sparking a significant rally in bond prices. However, concerns have surfaced recently due to the deterioration of the nation’s fiscal accounts and the absence of an anticipated loan from the International Monetary Fund.

The specifics of how much will be repurchased from the notes due in 2025, 2027, and 2029 have not been disclosed by the government. The total outstanding for these securities is approximately $1.75 billion. El Salvador's last bond sale occurred during the peak of the pandemic, where it priced $1 billion of debt at a 9.5% coupon. A subsequent $500 million bond sale by Fondo de Conservación Vial, a government agency, was canceled in December due to unfavorable conditions, including high double-digit yields.

President Bukele, known for his support of Bitcoin, has announced the plan to repurchase the country's dollar bonds, aiming to reduce its external debt and alleviate fears of default. Bonds targeted for repurchase include those with coupons of 5.875% due in 2025, 6.375% due in 2027, and 8.625% due in 2029. Notably, the 2029 bond has surged from 50 cents on the dollar to 90 cents, reflecting a boost in investor confidence as evidenced by the decline in the sovereign risk premium to 6.2 percentage points above U.S. Treasuries.

As El Salvador prepares to re-enter the international debt market, the potential bond repurchase program represents a strategic effort to strengthen the country's financial standing.

Bloomberg Article

Benzinga Article

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