Fitch Ratings continues to warn of El Salvador's default risk
The world's leading credit rating giant Fitch Ratings continues to warn about the risk of default of El Salvador.
Global credit rating agency Fitch Ratings has decided to downgrade El Salvador's long-term foreign currency debt issuance (IDR) from CCC- to CC-. The reason it was announced is because the country is facing a "catastrophic" liquidity source when bond maturity is approaching.
This move reflects Fitch's view that:
“El Salvador's financial position, external liquidity, and market access are extremely limited amid high financial demand and a large bond maturities of $800 million in January 2023 making a number of possible defaults.”
Fitch estimates El Salvador will need about $3.7 billion between now and January 2023, and an "unknown financial gap" of nearly $900 million.
"El Salvador's liquidity situation is very serious ahead of the Eurobond payment early next year," Fitch said.
El Salvador, the country that legalized Bitcoin in September 2021, has been paying the price for its Bitcoin law as the repayment date approaches. The country is currently holding 2,381 BTC, with an average purchase price of $45,000. This investment has unrealized losses of more than 56%, as of press time.
Three days ago, the Central American country officially offered to spend $360 million, instead of $560 million previously proposed, to buy back voluntary bonds representing debt that will come due in 2023-2025.
According to Fitch, El Salvador's buyback plan "will likely further weaken their already strained liquidity position. The size and scope of the transaction do not significantly change the probability of default.”
This is the second time Fitch has downgraded El Salvador's IDR. After a wave of protests and criticism across the globe, President Nayib Bukele's Bitcoin plan has faced "contempt" from the world's top credit agencies.
Sep 15, 2022