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El Salvador’s Volcano Bond: Financial Technology Or Financial Engineering?

how to buy el salvador bonds

The rally has lost steam recently amid fiscal deterioration and waning hopes of an imminent agreement with the IMF. Some of the proceeds of the deal would be used to help fund a buy back of existing notes due in 2025, 2027 and 2029, which have a combined $1.75 billion outstanding. It’s unclear how much the nation is offering to repurchase.

how to buy el salvador bonds

Outstanding Debt

This citizenship by-donation plan offers an easy path to becoming a Salvadorean for those willing to donate $1 million. Then 69 € per month.Complete digital access to quality FT journalism on any device. One part of the analysis that is not seen in many of the stories discussing the Bitcoin Bond are the hopes for serial issuance.

  1. According to the Bitcoin office, the bond received regulatory approval from the Digital Assets Commission.
  2. This citizenship by-donation plan offers an easy path to becoming a Salvadorean for those willing to donate $1 million.
  3. The issuance of an amortizing, macro-linked dollar bond may follow, said the people, who asked not to be identified because the talks are private.
  4. At 6.5%, the debt service on the bond would be $65 million to be solely generated on a 10% VAT.
  5. “We anticipate the bond will be issued during the first quarter 2024. This is just the beginning for new capital markets on Bitcoin in El Salvador,” the Bitcoin Office posted on X.

Credit and ESG Ratings

To be fully funded, Bitcoin City would need to generate a substantial amount of revenue. The Central American nation accepted all tenders for notes due in 2025, along with 41% and 24.7% of the offered bonds that mature 2027 and 2029, respectively, according to a government statement released Tuesday. It’s the first bond deal in nearly four years for the junk-rated borrower and follows a broad rally in El Salvador’s debt. Complete digital access to quality FT journalism with expert analysis from industry leaders.

El Salvador Buys Back $487 Million Bonds After Global Debt Sale

Beyond this new possible product, El Salvador bonds are among the most profitable in 2023, according to Bloomberg. How this success is related to bitcoin and cryptocurrencies is still being determined. Still, the new reality of augmented security the country lives in is helping to boost its investment products. As Diario El Mundo reported in early November, the positive change in the bond’s rate by S&P Global Ratings also helped expand their price. El Salvador bought back $487 million of its hard-currency bonds after tapping the global capital market for the first time in almost four years. El Salvador debt has posted world-beating returns of 215% since July 2022 as President Nayib Bukele’s government carried out two bond buybacks, refinanced local, short-term paper and orchestrated an exchange of pension debt.

Debt Service

Launching a $1 billion USD bond would mean increasing this debt by over 21%. Keep in mind, El Salvador’s GDP fell by 21.9% in 2020. As of October 27, 2021, El Salvador owned 1,120 bitcoin.

how to buy el salvador bonds

In order to reach their bitcoin holding goal, they would need to buy almost 7 times their current holdings. Fitch Ratings and Moody’s Ratings have El Salvador scored seven notches below investment grade, while S&P Global Ratings has it a level higher.

Early this year, Bukele addressed how traditional media was beating El Salvador’s default because it adopted bitcoin. The launch of the Bitcoin Bonds is a new step in El Salvador’s Bitcoin strategy, which aims to make the country attractive enough for bitcoin holders worldwide. Before the bond announcement, the government of El Salvador also launched the Freedom Visa.

Essential digital access to quality FT journalism on any device. While El Salvador’s Bitcoin Bond story sounds great, there are a number of hurdles that prospective investors must clear to truly buy into the story. It would be difficult for fixed mining benchmark income investors to buy the story on traditional financial metrics alone. The deal includes an additional interest-only security tied to nation’s credit score or an IMF deal. In 2020, El Salvador’s National debt stood at $21.71 billion.

El Salvador’s Bitcoin Bond would be structured as a 10-year, $1 billion note carrying a 6.5% coupon. Half of the proceeds would be allocated to buying bitcoin and half used to build Bitcoin City infrastructure. Structured in partnership with Blockstream, additional dividends, funded by the gains on the sale of bitcoin, will be paid to investors after year five. On first blush this plan seems ambitious, too good to be true some may say, but the real question is how much of this bond has to do with FinTech and how much has to do with financial engineering. The country last sold bonds at the height of the pandemic when it priced $1 billion of debt at a coupon of 9.5%. Since then only four countries have paid higher coupons to sell dollar notes, according to data compiled by Bloomberg.

(Bloomberg) — El Salvador returned to global debt markets with an offering that will pay investors a higher interest rate if the government fails to win credit upgrades or a deal with the International Monetary Fund. El Salvador returned to global debt markets with an offering that will pay investors a higher interest rate if the government fails to https://cryptolisting.org/ win credit upgrades or a deal with the International Monetary Fund. El Salvador plans to return to international debt markets for the first time in almost four years, while it offers to repurchase some of its existing bonds from global investors. El Salvador made bitcoin legal tender in 2021, putting itself in the center of the Bitcoin BTC community.

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