El Salvador says it has $560 million for partial debt redemption

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SAN SALVADOR — El Salvador will spend $560 million on a surprise bond buyback plan, its finance minister said Wednesday, as the impoverished country seeks to assuage concerns about the state of its public finances.

Salvadoran President Nayib Bukele announced the voluntary bond buyback offer on Tuesday, backed by funds allocated last year by the International Monetary Fund and a loan from a Central American multilateral lender.

Bukele, who last year championed the country’s adoption of cryptocurrency as legal tender alongside the US dollar, faces mounting pressure to demonstrate sound finances as El Salvador’s options dwindle before an $800 million bond maturity early next year.

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Finance Minister Alejandro Zelaya told local broadcaster TCS that the $560 million the country has could be used to buy some, but not all, of the 2023 and 2025 sovereign bonds, whose maturities total around 1.6 billion dollars.

The debt buyback program marks an attempt to demonstrate sound finances despite high inflation, costly fuel subsidies, and losses resulting from Bukele’s bitcoin bet.

“We are not going to buy all the debt. If we buy it, we will also buy it at a discount. And we are not going to spend more than we have in the bank,” the minister said.

“To pretend that we are going to have all the money to buy all the debt is to believe that we have a magic wand to solve the country’s fiscal problems,” he said, describing the bond buybacks as a first stage.

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Spreads between Salvadoran bonds and US Treasuries narrowed sharply on Wednesday but remained in very difficult territory.

Debt included in the offering saw the largest price gains, with the 2023 bond rising 12 cents to $0.86 and the 2025 bond up nearly 13 cents to $0.47, according to data from Refinitiv.

Morgan Stanley said in a research note Wednesday that if confirmed, the takeover would “clearly demonstrate willingness to pay.”

“Given that the primary market concern is about willingness to pay rather than ability, this transaction would significantly alleviate those concerns,” the bank’s analysts said, adding that there was no guarantee that the offer of takeover would materialize. (Reporting by Nelson Renteria in San Salvador; Additional reporting by Rodrigo Campos in New York; Writing by Carolina Pulice; Editing by David Alire Garcia and Richard Pullin)