VZCZCXRO1479
RR RUEHLMC
DE RUEHSN #0887 2651507
ZNR UUUUU ZZH
R 221507Z SEP 09
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 1632
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC

UNCLAS SAN SALVADOR 000887 
 
STATE PASS USAID/LAC 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ES
 
SUBJECT: EL SALVADOR TO ISSUE $800 MILLION IN EUROBONDS IN OCTOBER 
 
¶1. (SBU) SUMMARY.  The Government of El Salvador (GOES) announced 
plans to sell $800 million in Eurobonds in the international market 
in October.  Proceeds from the Eurobonds will be used to improve the 
liquidity of public finances and provide funding for new social 
programs.  While a new bond offering was expected to address El 
Salvador's debt issues, the move to issue new bonds this year, 
following two rating agency downgrades, comes as a surprise. 
Lower-rate loans from international institutions had been expected 
to get the GOES through the first half of 2010.  End summary. 
 
¶2. (U) The GOES announced plans to place $800 million in Eurobonds 
on the Luxembourg stock market in October.  President Mauricio Funes 
stated that the bond emission is needed to provide liquidity to 
public finances and to invest in new social programs.  These bonds 
form part of $1.8 billion in new debt the National Assembly 
authorized in May.  Doctor Carlos Acevedo, President of the Central 
Bank, said he plans to place the remaining $1 billion in bonds 
sometime in 2010. 
 
¶3. (U) The bonds, denominated in dollars, will have a seven year 
term with an interest rate between 7-8 percent.  The GOES placed an 
ad in the Wall Street Journal in late August soliciting an 
investment bank and/or law firm to manage the actual emission, while 
the Central Bank will act as the financial agent.  Flor Ivania de 
Fernandez of the International Management Office of the Central 
Bank, who is in charge of managing the emission, stated that they 
have just initiated the placement and contract process. 
 
¶4. (U) The GOES has over $2.7 billion in existing Eurobonds 
outstanding: $654 million due in 2011; $800 million due in 2023; 
$500 million due in 2023; $286 million due in 2034; and $1 billion 
due in 2035.  According to the most recent official projections, the 
GOES's fiscal deficit will exceed 5 percent for the current year. 
 
¶5. (SBU) COMMENT: While the GOES was expected to issue new Eurobonds 
before $654 million in existing bonds come due in 2011, the timing 
comes as a surprise.  Since May, both Fitch and S&P have downgraded 
El Salvador's credit rating, citing the fiscal deficit and the 
effects of recession in both El Salvador and the US.  Likewise, 
Moody's, which still has El Salvador at investment grade, announced 
September 14 that El Salvador was on the watch-list for a possible 
downgrade.  The GOES had previously been negotiating additional 
funding from the International Monetary Fund, World Bank, and 
Inter-American Development Bank, which most Salvadoran economists 
had expected to get the GOES through the first half of 2010. 
Instead, the GOES is placing a new offering, at high rates 
comparable to less stable countries like Gabon, in an international 
market that may not yet have the stomach for new emerging market 
debt.  END COMMENT. 
 
BLAU