China offered to buy El Salvador’s large amount of distressed foreign debt, President Nayib Bukele’s second-in-command told Bloomberg on Monday. “China has offered to buy all our debt, but we need to tread carefully,” Vice President Felix Ulloa said. “We are not going to sell to the first bidder, we need to see the conditions.”
A spokesperson for the Chinese Foreign Ministry said he was not aware of the matter, according to Bloomberg. While details on a potential detail remain sparse, it signals that the Central American nation is seeking ways to alleviate pressure within its bond market, and avoid defaulting on its dollar-denominated debt. S&P Global Ratings has given El Salvador a debt rating of CCC+, which is seven levels below investment grade.
According to Bloomberg, Ulloa said El Salvador has already been buying some of its bonds, and plans to repurchase more in January. That same month, roughly $667 million in bonds come due, so the buyback would likely happen before that. The government could use so-called special drawing rights, Ulloa said, or reserve assets held at the International Monetary Fund.
El Salvador’s debt due in January has pared losses to about 91 cents on the dollar, but most of the country’s notes remain in distress. On average, investors demand a yield premium of 18.77 percentage points above US Treasuries to hold El Salvador’s sovereign debt, data from JPMorgan shows.
Meanwhile, led by bitcoin-bull Bukele, El Salvador has largely become known for its bitcoin advocacy, and has touted plans for a bitcoin bond after adopting bitcoin as legal tender in 2021.
But in January, Moody’s warned that El Salvador’s bitcoin buying spree may boost the country’s credit risk if it continues. 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.
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