El Salvador aims to avoid default with $1.6 billion bond buyback as the nation caps off its first year with bitcoin as official currency
- El Salvador said Tuesday it will buy back $1.6 billion in sovereign bonds to avoid default.
- Bitcoin-bull President Nayib Bukele tweeted that he would ensure the nation has the available funds to make bond purchases.
El Salvador announced Tuesday it would move to buy back $1.6 billion in its own bonds as it attempts to steer away from a default.
Since the Central America nation adopted bitcoin as legal tender last September, its bonds have traded at steep discounts.
Crypto-bull President Nayib Bukele took to Twitter to describe the country's next moves.
"Today we are sending 2 bills to Congress to ensure that we have the available funds to make a transparent, public and voluntary purchase offer to all the holders of Salvadoran sovereign debt bonds from 2023 to 2025 at whatever the market price is at the time of each transaction," Bukele tweeted.
He added that El Salvador has the liquidity to meet all of its commitments on schedule and purchase its own debt in advance.
—Nayib Bukele (@nayibbukele) July 26, 2022
The debt buybacks will begin in six weeks, Bukele said, and they will occur at market price.
Finance Minister Alejandro Zelaya said the government would begin purchasing debt using special drawing rights from the International Monetary Fund and a loan from the Central American Bank for Economic Integration.
"We are ensuring the availability of funds to offer our bondholders an early purchase option for the debt, which will be public and will respect market regulations," Zelaya said at a press conference.
After the announcement, El Salvador's sovereign debt value rose. Bonds maturing in 2023 jumped about 10 cents on the dollar to trade at 86 cents, and 2025 bonds hit their highest mark since April.
In May, Moody's downgraded the country's debt rating deeper into junk range, citing an estimated, unrealized bitcoin loss of about $57 million.
According to Bloomberg data, El Salvador has purchased roughly 2,300 bitcoin since making it legal tender last year — and the token has dropped more than 50% in that stretch amid a broader crypto bear market. But Zelaya has not signaled concern.
"When they tell me that the fiscal risk for El Salvador because of bitcoin is really high, the only thing I can do is smile," he told media in June. "The fiscal risk is extremely minimal."
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