Moody’s Downgrades El Salvador’s Debt, The First Country To Adopt Bitcoin

0
Moody’s Downgrades El Salvador’s Debt, The First Country To Adopt Bitcoin
12019 / Pixabay

Financial services company Moody’s Corporation (NYSE:MCO) downgraded El Salvador’s debt rating by two notches, from “Caa3” to “Caa1”, due to a higher probability of default. El Salvador became the first country in the world to adopt bitcoin (BTC) as a legal tender.

Play Quizzes 4

Downgrade

As reported by Bloomberg,  Moody’s Investors Service has downgraded El Salvador’s debt and stated: “It is due in large part to the lack of a credible financing plan, a factor that increases credit risks stemming from restricted market access due to El Salvador’s distressed foreign debt yields.”

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 2022 hedge fund letters, conferences and more

How Value Investors Can Win With Tech And “Fallen” Growth Stocks

Valuation Present ValueMany value investors have given up on their strategy over the last 15 years amid concerns that value investing no longer worked. However, some made small adjustments to their strategy but remained value investors to the core. Now all of the value investors who held fast to their investment philosophy are being rewarded as value Read More

According to the media outlet, the rating agency fears large material losses for investors, given the upcoming bond repayments, since El Salvador currently has a debt or non-payment of $800 million, which expires in 2023.

With the adoption of BTC as legal tender, El Salvador announced the construction of Bitcoin City, as well as the issuance of BTC bonds as an alternative to obtain resources. However, in mid-March, President Nayib Bukele announced a delay in the bond issuance without an exact date.

Nayib Bukele’s government has not commented on the matter, nor clarified how it will pay the next due dates. Weeks ago, it mentioned that the projects related to BTC were separate and would not affect the country's finances.

BTC Bonds

In addition, El Salvador's dollar bonds widened up to 2,200 points —even more than those of the U.S.— which would reflect the dependence of the country's government on short-term debt, which increases risks, according to Moody's.

As per the Salvadoran newspaper Contrapunto, Moody's also highlighted that it does not see a financing plan, which commits the country to acquire additional credit risks, which increases the "default risk."

However, it pointed out that the government eased liquidity pressures with a 26.8% increase in tax revenue in 2021.

Nayib Bukele said on March 24 that the government delayed the issuance of “Bitcoin Bonds” of what could be the world's first bitcoin-backed bond to address a reform that must first be sent to Congress.

“The brief delay in issuance is only because we are prioritizing the internal pension reform and we have to send that to Congress before (sic),” Bukele tweeted.

Updated on

Cristian Bustos is senior editor for ValueWalk.com. Previously, he was the news correspondent in Germany for Colombian radio broadcast Blu Radio, where he covered the 2017 German federal election and the 2017 G20 Hamburg summit. He was also public relations consultant to EY and HAYS, and has covered a wide range of topics including business, finance, and international relations, as well as verticals such as automotive, aerospace and renewable energy. Email him at cbustos@valuewalk.com.
Previous article $750 Stimulus Checks To Frontline Workers Coming Soon
Next article Senator Collins Opposes Federal Abortion Bill – Democrats Missed Chance

No posts to display