Repurchase of bonds will be launched before September 15th

The Ministry of Finance assured yesterday that the repurchase operation of the 2023 and 2025 bonds will be launched before September 15.

The Legislative Assembly approved last Tuesday three initiatives presented by the Ministry of Finance linked to this operation, announced at the end of last July to reassure the market in the face of alerts of a risk of default for 2023.

One of these laws empowers the Treasury to manage debt according to the terms of the international market. Another is to incorporate $365 million of the Special Drawing Rights (SDR) corresponding to the reserves before the International Monetary Fund (IMF), and the third is an incorporation of $200 million loaned by the Central American Bank for Economic Integration (CABEI).

“They are going to help us so that before September 15, if everything goes as we have planned, we will make available to the market the advance purchase operation of the 2023 and 2025 bonds that could generate savings for the Republic and that, in addition, that it is going to stabilize the indicators of the international markets”, Zelaya pointed out.

In total, the Treasury has $565 million available for the advance purchase of the 2023 and 2025 bonds, which add up to $1.6 billion, of $800 million each issue.

Zelaya pointed out that El Salvador is “far from reaching” the annual financing quota with CABEI. In addition, “we are finishing” some operations with the Development Bank of Latin America (CAF) and private loans.

“How much (bonds) are we going to buy? It will depend on how much the market makes available. We cannot determine that, but we also have other sources of financing”, he stated during the Face to-Face interview.

They are going to help us so that before September 15, if everything goes as planned, we will make the operation available to the market”. Alejandro Zelaya, Minister of Finance

“It is going to be a totally successful operation. The markets have reacted very well,” Zelaya said, referring to the fact that the price of the 2023 bonds has risen since the repurchase announcement and is trading above $89 this week, after hitting a low of $49 at the beginning of the year.

Along with the fall in the price of bonds, the country’s risk (measured by the Emerging Bonds Indicator (EMBI)- broke a record by exceeding 35 points on July 15, 2022. In addition, the ratings agencies deteriorated the debt profile at a speculative level.

“What needs to be done right now? Seek financing that can improve the debt profile, simultaneously improve the country’s rating and continue fighting evasion to improve our income, while ordering public spending, “he indicated.

After the announcement, the EMBI of El Salvador began to drop from the maximum seen in July, and by August 16, it was placed at 25.91 points. However, it remains the second highest risk in Latin America after Venezuela and far from the nine points recorded on the same date last year.

The treasury holder denied that the operation was about debt renegotiation because “it is when a country basically calls its creditors and tells them that it does not have the capacity to make these payments.” This is an “extreme step” that does not apply to El Salvador because, to date, the commitments have been fulfilled, he reiterated.

The announcement also influenced the EMBI (Emerging Bond Indicator). It was placed on August 16 at 25.91 points, lower than the maximum observed on July 15 at 35.1 points.