El Salvador plans to issue $1 billion in bonds

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By LatAm Reports Editorial Team

The exit to the international market to be obtained if you are loaned that amount, or less, would be on April 11. A key requirement for the government is a “sexy” deal with the IMF.

The El Salvador government plans to issue about $1 billion in bonds on the international market, of which it would use most to repurchase bonds that expire in the 2025, 2027 and 2029.

According to information from a stockbroker’s house in the country to which El Diario de Hoy had access, the Executive Body prepares this exit to the market on Thursday, April 11 and would liquidate them on the 16th of this month, unless it postpones the operation it would do under the law of New York, United States.

“75 per cent of the funds raised could be used to anchor the announced buyback for Euro2025, 2027 and 2029 maturities,” he says in the broker house document.

Any investor who is interested in buying these Salvadoran bonds must acquire a minimum of $150,000.

This government intention to issue bonds is known one day after President Nayib Bukele announced on April 8 that they will launch a public offer for the repurchase of bonds due between 2025 and 2029 amounting to about $1.749 million.

“Today we launched the BUY offer of our EXTERNMENT DEUDA, which has maturities from 2025 to 2029” (sic), Bukele, who is licensed, published on his X account.

A statement released by Bukele states that the offer will be in force between April 8 and 15 to “buy the principal amount of bonds accepted for tender and pay the accrued interest and any premiums in respect of those bonds.”

The bonds the country is looking to buy are those that mature in 2025 for $347.9 million, by 2027 they add up to $800 million and $601 million for 2029.

Hence the urgency of issuing the $1 billion to buy in advance the bonds that are yet to be won. According to the characteristics of the new issue, the deadline for paying the bonds will be 6 years, i.e. they would be cancelled in 2030. And the capital amortization will take place at three different times with 33% of the issue, while interest will have to be made every 6 months.

“It is estimated that, from October 2024, the variable component of the note pays 0.25% annualized coupon, thus continuing every 6 months until the first Macro test arrives, where it will be defined whether the next payment can rise to 4.00% (in the event of Macro Test failure) annuallyized or remain at 0.25% (if applicable to the Macro Test),” the runner house details in the document.

What requirements should the government meet?

According to the information of the stock market, in order for the Salvadoran government to access this loan on the international market, it will have to meet macroeconomic requirements set out in a “Macro Test”:

  1. Successful agreement with IMF (International Monetary Fund)
  2. “Let the agreement with the IMF not be lost during the life of the Note (end’s vitergence).”
  3. “May the Sovereign (Government) receive an increase in credit rating from two international agencies.”

And the first review if it has met the requirements of that “examination” would be in October 2025, while the first payment under the results of the “Macro Test” would be in April 2026, the runner house explains.

However, meeting the first two requirements would be uphill, because reaching an agreement with the IMF has a “stone in the shoe”: Bitcoin.

The IMF said on April 4 that addressing the risks arising from Bitcoin, a legal tender currency in El Salvador since September 2021, is a “key element” of the talks it is having with Nayib Bukele’s government for an economic agreement.

“Addressing the risks arising from bitcoin is a key element of our conversations with the Salvadoran authorities,” IMF spokeswoman Julie Kozack said at a press conference in Washington.

But from the government the messages are different. In February, an American political scientist and columnist questioned the vice president-elect, Felix Ulloa, about whether they would choose to eliminate Bitcoin as a legal tender currency or accept a financial agreement with the Monetary Fund and unambiguous Ulloa replied that they will keep the Bitcoin.

Did I ask Felix Ulloa, vice president of Bukele, (if) forced to choose between keeping Bitcoin as a legal tender currency or the IMF loan, which would the government choose? – Keep Bitcoin. There’s no problem, we’ve already told the IMF, he told me, citing the publication of Will Freeman, a doctor of politics at Princeton University, United States.

And while the IMF spokeswoman said the agency is continuing in talks with the government to reach an economic agreement, negotiations with the Salvadoran Executive focus on the implementation of policies to strengthen economic governance, fiscal and external sustainability to boost productivity growth.

These discussions with the Fund began in March 2021 and there is still no agreement on view.

This article has been translated from the original which first appeared in El Salvador