El Salvador: China Offers to Buy Its Debt in the Face of Default Fears

• Bloomberg was informed by Felix Ulloa, El Salvador’s Vice President, that China offered to refinance El Salvador’s foreign debt.
• El Salvador, however, must be cautious: “We aren’t going to sell the first bidder. We need to see the terms.”
• S&P Global Ratings gave El Salvador a rating of CCC+, which is seven levels below investment grade.

China offered to buy El Salvador’s large amount of distressed foreign loans, President Nayib Bukele‘s second in-command told Bloomberg Monday

Vice President Felix Ulloa stated, “China has offered us to buy all our debts, but we need be careful.” “We won’t sell to the first buyer, we need conditions to know.”

Bloomberg reported that a spokesperson for the Chinese Foreign Ministry said that he was unaware of the matter.

Although details about a possible detail are still sparse, it indicates that El Salvador is looking for ways to ease pressure in its bond market and avoid defaulting its dollar-denominated bonds. S&P Global Ratings has given El Salvador a debt rating of CCC+, which is seven levels below investment grade.

Bloomberg reports that Ulloa claimed El Salvador has already purchased some of its bonds and plans on repurchasing more in January. The purchaseback of bonds worth $667 million is due in January, so it would likely occur before then. Ulloa stated that the government could use special drawing rights or reserve assets at the International Monetary Fund to fund its purchase of so-called special drawing right.

El Salvador’s January debt due to be paid in January has reduced losses to around 91 cents on USD, but most notes in the country are still in trouble. Data from JPMorgan show that investors are willing to pay an average yield premium of 18.77 percent above US Treasuries in order to hold El Salvador’s sovereign bonds.

El Salvador, led by Bukele (a bitcoin-bull), has become well-known for its advocacy of bitcoin. touted plans for a bitcoin bondAfter adopting bitcoin legal tender in 2021.

However, in January Moody’s warned that El Salvador’s bitcoin buying spreeIf it continues, it could increase the country’s credit risk. The country’s government, has had liquidity issues in the past, making trading bitcoin “quite risky,” Moody’s analyst Jaime Reusche told Bloomberg in an interview.