28 de enero de 2016 / 14:16 / en 2 años

Bond drop hits Salvadoran funding costs

NEW YORK, Jan 28 (IFR) - El Salvador’s plans to tap the international capital markets this year could come at a higher cost after a sharp decline in the sovereign’s bond prices.

The Central American country has seen its dollar bonds drop multiple points in recent weeks as its credit metrics deteriorate.

The sovereign’s 7.65% 2035s and 7.625% 2041s have respectively sunk about 10 and eight points since December 11 to trade this week at a mid-market price of 78.375 and 78.125, according to Thomson Reuters data.

It is a similar story for its 5.875% 2025s, which have dropped about six points over the same period to be quoted at a mid-market price of 79.875 or a yield 9.35%.

While stronger remittances and declining oil prices have helped to reduce the current account deficit, the fiscal picture remains poor for a country whose debt-to-GDP ratio is near 60%.

The sharp drop in debt prices could present a buying opportunity for investors who think the government can pass pension reforms that would reduce the country’s debt burden.

“If you think in the end El Salvador will find some financing solution ... this provides a good entry point,” said Nathalie Marshik, executive director of emerging markets sovereign research at Oppenheimer.

Moody’s revised its outlook on El Salvador’s Ba3 rating in November to negative from stable, while Fitch Ratings downgraded the country to B+ from BB- in July.

Both rating agencies cited El Salvador’s rising debt burden.

The opposition party ARENA does not support reforming El Salvador’s pricey pension system - which costs 2% of GDP per year - but it has usually cut deals with the government over financing, said Marshik.

“This may explain the government’s confidence that an external issue will be forthcoming in the first half of 2016,” Marshik wrote in a recent report.

While the Dominican Republic tapped the markets this month with a 10-year 6.875% bond, Marshik believes El Salvador would have to pay something closer to 10% for the same tenor. (Reporting by Hillary Flynn; Editing by Paul Kilby and Marc Carnegie)

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