The agency catalogued the opportunistic operation because the government was able to meet the obligations without the transaction at prices slightly above the markets.
S&P Global Ratings kept El Salvador’s sovereign rating unchanged after assessing that the bond buyback is “opportunistic.”
The agency explained that it did not modify the Salvadoran debt note in ‘B’, with a stable perspective, because we consider that the debt repurchase is opportunistic and similar to a liability management operation, since we believe that the government could have fulfilled its financial commitments without this transaction.
S&P Global Ratings notes in a statement, issued on Thursday, that the stable outlook on the rating reflects El Salvador’s fragile fiscal position in its “reduced financing needs” given its very active debt management policy.
On October 4, the Salvadoran government launched an offer to repurchase the bonds with maturities between 2027 and 2052, in total are eight issues of $6.2 billion, plus a $1 billion variable macro interest bond.
In a statement, issued on Friday, he confirmed that investors offered $1,756 million, but still does not detail how much of that amount he will eventually acquire.
Do we consider this transaction as an opportunistic liability management operation, rather than an anguished exchange, despite the long-term ‘B-‘ rating. In our view, El Salvador could have fulfilled its debt obligations for the foreseeable future without this transaction. S&P Global Ratings, communiqué issued on October 10, 2024
S&P Global Ratings considers the offer to be one more step in the extensive debt reshuffle process that began in 2022, when it launched the first bond buyback in the midst of a credibility crisis if the government would have financing to pay a bond in 2023 without agreement with the International Monetary Fund (IMF).
This process also includes the exchange of pension debt in April 2023, the refilling of a part of the short-term debt held by private banks that began in October 2023 and ends this month, as well as a third bond buyback in April 2024.
Despite the fiscal relief from these measures, the country’s public finances remain fragile, reflecting long-term structural vulnerabilities, the agency adds.
For S&P Global Ratings, El Salvador’s rating incorporates its institutional weaknesses in – a means of poor controls and balances, as well as prospects for moderate growth and low investment.
We will analyze the rating implications of any possible repurchase or future exchange of the debt on a case-by-case basis, considering the respective terms and conditions, as well as the prevailing terms and conditions, the agency adds, while warning that it could raise the note in the coming months if the government is able to implement comprehensive reforms to reduce the fiscal deficit and financing needs.
In addition, he indicated that public debt accounts for 77 per cent of gross domestic product (GDP), including pension funds.
This article has been translated after first appearing in Diario El Mundo