Bond investors asked El Salvador to borrow $1 billion to fund a volcano-driven “Bitcoin City“, said the plan may push the country further away from the traditional debt market.
President Nayib Bukele (Nayib Bukele) made it in September Bitcoin The Central American country’s fiat currency said on Sunday that half of the proceeds will be used to purchase cryptocurrencies, and the rest will be used for infrastructure and Bitcoin mining.
Emerging market fund managers have little interest in buying these new bonds, and El Salvador plans to issue these new bonds at an annual coupon rate of 6.5% next year. This is much lower than the current interest rates of the country’s existing overseas bonds, which have been spiraling upwards since the beginning of this year. Investors hesitate The direction of Booker’s economic policy is becoming increasingly unorthodox.
“When the credit is bad, why do you lend them this level of money?” said Kevin Daly, fund manager of Aberdeen Standard Investments. “They were turned away [conventional] The bond market, so they cannot finance themselves in this way. I don’t know who will buy these bonds, but it certainly won’t be us. “
The sell-off of Salvadoran bonds continued on Monday, pushing the yield on bonds maturing in 2032 to more than 13%. The country has 10 international dollar bonds valued at 7.65 billion U.S. dollars, accounting for approximately 30% of its GDP and approximately one-third of its total government debt.
Its next debt repayment is a $800 million bond maturing in January 2023. The bond is currently trading at less than 84 cents against the U.S. dollar – with a yield close to 25% – indicating that people are quite anxious about El Salvador’s ability to repay.
The new “Bitcoin bonds” will be sold for $100 in transactions arranged by the cryptocurrency exchange Bitfinex, and may find a more acceptable audience among small investors and cryptocurrency enthusiasts.
Samson Mow, Chief Strategy Officer of Blockstream, a blockchain technology company, said: “We believe this bond issuance will attract a wide range of investors, including cryptocurrency investors, investors seeking income,’holders’ and ordinary people.” Has been advising the Booker government on the plan. “We believe that this kind of bond may accelerate the super-bitcoinization and bring a new financial system built on top of Bitcoin.”
Mow stated that holders of the bond will receive a “special dividend” from the “staggered liquidation” held by El Salvador’s Bitcoin.
A person engaged in bond issuance said that many potential investors are not motivated purely by financial considerations. “People aspire to be part of something so groundbreaking,” the person said.
“The market sentiment is positive because there is already a lot of capital in the digital token field. In fact, far less compelling projects have attracted more interest,” the person added.
But holders of El Salvador’s existing bonds are worried that the plan is unlikely to improve the country’s overall credibility, especially if its success convinces the Booker government that it can do without Support from the International Monetary FundAnalysts said that negotiations with the fund have been delayed for a whole year and there is little hope of a breakthrough.
“I wouldn’t be surprised if they manage to raise funds,” said Carlos de Sousa, portfolio manager at Vontobel Asset Management. “But Bitcoin bonds may make the IMF plan less likely because they say we have managed to find new sources of financing.”
De Souza stated that El Salvador would be almost impossible to re-enter the bond market without at least the support of the International Monetary Fund in the future, adding that without market access, it would be difficult to repay its 2023 bonds.
On Monday, Washington’s Chargé d’Affaires in El Salvador, Jean Manes, had a further decline in relations with the United States. Said She will leave this country.
“We are suspended because the Salvadoran government has no interest in improving relations,” she said in a local news interview.
For the latest news and views on financial technology from the Global Correspondent Network of the Financial Times, please subscribe to our weekly newsletter #fintechFT