El Salvador Seeks To Buy Back $1.6 Billion In Debt To Quell Fears Of Default
Amid falling Bitcoin (BTC) prices and growing concerns about El Salvador defaulting, the Central American country is attempting to buy back $1.6 billion of its government bonds.
El Salvador President Nayib Bukele tweeted on July 26 that he had sent two bills to parliament to ensure that the country had the funds to make a “transparent, public and voluntary” purchase offer for all, including holders of Salvadoran sovereign debt bonds.
Bukele added that bonds between 2023 and 2025 would be redeemed at market prices, starting in about six weeks or early September.
Some economists have stated that El Salvador’s adoption of Bitcoin has exacerbated the risk of default. But Bukele says the country not only has enough money to pay off all of its debt when it comes due, but it can also pre-purchase all of its debt through 2025.
El Salvador bonds, which have been trading at low levels since the adoption of Bitcoin as legal tender last year, have spiked in value on the news of the buyback. Bonds maturing in 2023 rose about 10% to 86 cents in dollar terms, while bonds maturing in 2025 rose to their highest levels since April to trade at 49.6 cents against the dollar.
In his Twitter thread, Bukele highlighted that El Salvador bond prices would rise on buyback news, but the country is still prepared to buy its debt. Last week, despite poor performance, Morgan Stanley said it was willing to buy El Salvador bonds.
El Salvador’s bond buyback offer comes after a plan to sell a $1 billion Bitcoin-backed Bond failed as the crypto market rallied.
According to former Salvadoran central bank governor Carlos Acevedo, the country could save $900 million in interest and principal if it could secure the funds to buy bonds. Acevedo said:
“It’s the best option the government had on the menu to honour the expiration of these bonds. The success of this initiative will depend on how the market reacts.”
El Salvador’s credit was downgraded by Fitch Ratings in February 2022. In May, Moody’s did the same. According to estimates, El Salvador’s unrealized loss on Bitcoin investments stands at $52.6 million.
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