Bloomberg News reports that Morgan Stanley is all set for scooping up battered bonds of El Salvador. As the president’s bet on the largest digital currency, Bitcoin, is found to backfire, it has come to light that these notes are the worst performing in the current year.
The government’s $7.7 billion in Eurobonds has been punished overly by the market. According to Simon Waever, the global head of the bank’s emerging market credit strategy, despite El Salvador possessing much better metrics than its distressed peers, it has been overly punished.
The 2027 bond of the country has plunged 32 cents on the dollar this year to 28 cents, reaching a record low on Friday of 26.3 cents.
Waever’s Estimate
Waever estimates that, on average, the debt must trade at 43.7 cents on the dollar, although the country is moving towards a default. However, he knows that reaching this state might take longer because global equity is tightening. The calculations, however, do not encompass an $800 million due in January 2023, which usually traders at a higher limit of 65 cents on the dollar.
The country might likely get muddled without missing out on the payments for another 12 months, as stated by Waever in his note. Compared to its peers, Ukraine, Egypt, and Argentina, El Salvador runs a primary surplus and is seen as having smaller maturities that come due.
Bloomberg News also reports that the approach of market pessimism towards El Salvador has been attributed to the unpredictable policies of president Nayib Bukele, which include firing a few of the top judges of the country too, making the largest cryptocurrency, Bitcoin, a legal tender, and announcing a dollar bond sale related to the token that failed.
Since it peaked in November, the Bitcoin price was found losing approximately one-third of its value, triggering losses of around 48% with the president’s gamble that started in September. The country is currently holding around $56 million in Bitcoin, as per the data that Bloomberg compiled.
These policies have also impacted the country’s talks with the International Monetary Fund. For restructuring to work well, the IMF needs to get involved.
