El Salvador announces the repurchase of its foreign debt

The president of the republic, Nayib Bukele, reported that yesterday the country officially launched, before international markets, the offer to repurchase El Salvador’s foreign debt from 2023 to 2025.

«Today we have officially launched the purchase offer for all our external debt maturing between 2023 and 2025. All bondholders of the Republic of El Salvador can access this public and voluntary repurchase,» the president published from his Twitter account.

This is a financial maneuver with which the government hopes to save between $100 million and $150 million and undermines the rumors of non-payment of the debt due in January 2023 spread by different opposition voices since the beginning of this year.

The settlement of the bonds offered and accepted is scheduled for September 22 of the current year, or around said date, and the Salvadoran government reserves the right to delay the settlement date without extending the expiration time, says the web portal, Cision PR Newswire, chosen for the official publication of the invitation and quoted by President Bukele.

The president confirmed that the objective is to buy all the available debt on the market from 2023 to 2025, both for $800 million, and that the paperwork required to implement this strategy took six weeks to make it official on Sep 12th.

In this regard, the vice president of the firm Exor Latin America, César Addario, explained that the technical steps to follow to execute a repurchase process such as the one being launched by El Salvador are four: approach to the operation, preparation of documentation, call and presentation to holders, and finally the allocation process and the value of the repurchase bond.

The expert considered the strategy proposed by the executive at the end of July this year to be correct and said that its success is related to the availability of cash that the state has. He also pointed out that the improvement in the price of Salvadoran bonds at the end of last month responded to the fact that «as there is news of liquidity to buy the bonds, the liquidity risk that investors perceive is reduced.»

He explained that this situation could also have an impact on the repurchase: «Holders evaluate their positions with a lower discount rate due to the expectation that the risk of default is lower and, consequently, the price of the bonds rises,» he explained.

For the repurchase strategy, the country has $360 million of Special Drawing Rights (SDR) that were granted by the International Monetary Fund (IMF) to its member countries to act during the COVID-19 pandemic, in addition to pending disbursements from the Inter-American Development Bank (IDB) and the Central American Bank for Economic Integration (CABEI),» said the Minister of Finance, Alejandro Zelaya.

The official has also confirmed that the repurchase strategy does not breach any agreement with the country’s creditors since the mechanism is carried out in compliance with all market rules, and it will be the market players who will be free to take or not take the offer.

In this sense, he also criticized the government administrations of the past, which, in addition to being responsible for the country’s indebtedness, never looked for alternatives within the stock market to minimize the impact of the external debt.

«No country that takes advantage of the rules of the stock market is defrauding the confidence of any investor. They are the rules of the market. It is totally legal and it is done in advanced economies,» Zelaya asserted.