CORRECTION: This article was corrected on Monday, April 15 to say that the country’s macro-linked bonds provide higher payouts if the country gets a new IMF program or multiple rating upgrades and are not tied to GDP growth.

El Salvador sold $1 billion worth of macro-linked bonds on Thursday to fund a buyback, returning to the international market after a gap of almost four years, undeterred by soaring yields on US Treasuries as traders push back bets of monetary easing by the Federal Reserve, market sources told LatinFinance.

“The demand was not as strong as other recent LatAm deals, but that is to be expected given that El Salvador is a low-rated credit and the repricing we had on the US Treasuries curve making investors more risk-sensitive,” said Bruno Rovai, sovereign strategist at Macquarie Asset Management.

“We participated in the deal on a tactical basis, within the context of the cash tender offered by the republic as well,” he added, describing the sale as “attractive.”

El Salvador’s new 2030 notes carried a coupon of 9.25% and priced at 89.923 to yield 12% after the sovereign opened the deal in the low-12% area with Bank of America as the sole bookrunner, according to IFR News.

“From our perspective, the pricing of this deal came slightly cheaper than the existing curve, adjusted for recovery analysis and including the interest-only bond on the valuation,” Rovai said. Investors placed as much as $2 billion in orders, he added.

El Salvador began pitching the sale on Monday, offering notes that provide higher payouts if the country either lands a financing deal with the IMF in the next 18 months or receives multiple credit-rating upgrades.

The government plans to use the proceeds to fund a tender offer for bonds that mature between 2025 and 2029. Bank of America is also dealer manager on that deal.

IMF TALKS

It is the country’s third buyback since 2022, part of President Nayib Bukele’s strategy to order the public finances, including by negotiating a funding package with the IMF.

El Salvador’s decision to adopt Bitcoin as legal tender in 2021 and consider selling Bitcoin-denominated bonds raised eyebrows at the IMF.

“While President Bukele has won praise for recent buybacks and refinancing, it is unlikely the IMF is going to retreat from its objection of the adoption of Bitcoin as legal tender which has stalled talks over an estimated $1.4 billion deal,” said Beth Morrissey, managing partner at Washington DC-based emerging markets advisory firm Kleiman International Consultants.

“The IMF may, however, welcome the fact that although one new tranche is unique, the sovereign is not coming to market with its promised volcano bond denominated in BTC,” she added.

FISCAL FRAGILITY

The Fund asked El Salvador in February last year to reconsider the bitcoin bond issue, citing legal risks, fiscal fragility and the speculative nature of crypto markets.

“Our base case scenario is that even without an IMF deal, the administration will have to deliver a fiscal adjustment plan as it runs out of options to cover its finance gap in the next few years,” Macquarie’s Rovai said.

S&P Global Ratings raised El Salvador’s credit rating to B- from CCC+ last November citing the country’s efforts to refinance short-term debt and mitigate its default risk.

El Salvador last issued bonds overseas in July 2020, when it printed $1 billion worth of 32-year notes to fund its efforts to bolster the economy during the COVID-19 pandemic.