El Salvador's Bitcoin Bonds plan is carefully absorbed by fund managers

Bailouts have the plans for El Salvador to record one billion US dollars to finance a “Bitcoin city” powered by volcanoes, dark opinion.

President Nayib Bukele, who made Bitcoin a legal means of payment in the Central American country in the Central American country, said on Sunday that half of the proceeds would be used for the purchase of the cryptocurrency and the rest were used for infrastructure and bitcoin mining.

The managers of Emerging Markets Fund showed little interest in buying the new bonds that El Salvador wants to go with an annual cupon of 6.5 percent next year. This is far below the prevailing interest rate for the existing overseas bonds of the country, whose returns have increased this year, since investors are shining against the increasingly unorthodox direction of Bukele's economic policy.

"Why would you borrow money at this amount if it is a needy loan?" said Kevin Daly, fund manager at Aberdeen standard investments. "You are from the [Conventional] bond market so that you cannot finance yourself. I don't know who will buy these bonds, but we will definitely not be."

The sale of the Salvadorian bonds continued on Monday and pressed the return of a bond with due date in 2032. The country has 10 international dollar bonds worth $ 7.65 billion, about 30 percent of its gross domestic product and about a third of its entire government debt.

The next repayment is an $ 800 million bond with due date in January 2023. This bond is currently being traded at a price of less than $ 84 per dollar-and a return of almost 25 percent-which indicates significant concern about El Salvador's ability to pay the payment.

The new "Bitcoin bonds", which are sold in tranches of $ 100 in a deal that are arranged by the Bitfinex crypto exchange, could find a more open audience for small investors and crypto enthusiasts.

"This bond offer is something that, in our opinion, will be attractive for a wide range of investors, of cryptocurrency investors, return seekers, 'Hodlern' and simple people," said Samson MOW, Chief Strategy Officer of the Blockchain technology company Blockstream, advises the government of Bukele. "We believe that this bond has the potential to speed up hyperbitcoinization and create a new financial system that is based on Bitcoin."

Owner of the bond would earn "special dividends", which will be generated by "staggered liquidation" of the Bitcoin stocks of El Salvador, said MOW.

A person who worked on the emission of bonds said that the motives of many potential investors were not purely financial in nature. "There is a desire to be part of something so groundbreaking," said the person.

"The mood is positive, because there is already a lot of capital in the area of ​​digital tokens. In fact, far less convincing projects have aroused more interest," added the person.

The owners of El Salvador's existing bonds fear that the program will probably not improve the general creditworthiness of the country, especially if the success of the Bukeles government is convincing to renovate their finances with the support of the IMF. According to analysts, negotiations with the fund drag on all year round and there are hardly any prospects for a breakthrough.

"I would not be surprised if you could get the money," said Carlos de Sousa, portfolio manager at Vontobel Asset Management. "But the Bitcoin bonds may make the likelihood of an IMF program even lower because they say that we have managed to find a new source of financing."

el Salvador has little prospect of regaining access to the bond markets without the potential of future support from the IMF, said de Sousa and added that it would have difficulty repaying its bond in 2023 without market access.

The relationships with the USA reached another low on Monday when Washington, a preliminary business authority in El Salvador, Jean Manes, called she would leave the country.

"We take a break because the government of El Salvador shows no interest in improving the relationship," she said in a local news interview.