According to a note by Simon Waever, the global head of emerging-market sovereign strategy at Morgan Stanley (NYSE: MS), the market has “overly punished” the $7.7 billion in Eurobonds held by the Salvador government, regardless of the country having better metrics than other troubled peers, Bloomberg’s Maria Elena Vizcaino reported on July 19. As Waever explained:
Effects of the poor market conditions
Indeed, the price of Bitcoin has dropped by close to a third of its value since its all-time high in November 2021, leading to losses of about 48% for the Central American nation, which currently holds around $56 million in Bitcoin. Consequently, El Salvador’s 2027 bond has dropped 32 cents on the dollar to 28 cents in 2022, declining to a record low of 26.3 cents on July 15. In Weaver’s view, the debt should trade on average at 43.7 cents on the dollar, even if the nation is on the path toward default. However, he admits that the chances of touching this level in the near future were low in the face of the tightening global liquidity. As per the report, the market pessimism is partly due to President Bukele’s erratic decisions, such as making Bitcoin legal tender, announcing a failed dollar-bond sale linked to the digital asset, and dismissing some of the nation’s top judges.
Restructuring options
Furthermore, Waever also believes that the International Monetary Fund (IMF) should have a role in any potential restructuring: El Salvador’s finance minister Alejandro Zelaya had announced the planned issuance of a Bitcoin-backed bond for late March. However, Bukele has been announcing it since November 2021, pledging half of the $1 billion collected toward building energy and Bitcoin mining infrastructure, and the other half toward increasing El Salvador’s crypto assets, Finbold reported.
