A hedge fund that bought El Salvador bonds last year still sees value in the debt even after it posted a 180% return.
(Bloomberg) — A hedge fund that bought El Salvador bonds last year still sees value in the debt even after it posted a 180% return.
Converium Capital Inc. is sticking to a position it started building last year when most of Wall Street shunned the country due to fears over President Nayib Bukele’s obsession with Bitcoin.
Those concerns proved to be “overblown,” said Nadir Cura, an investment analyst at the Montreal-based fund. Bukele has shown himself to be more fiscally responsible than leaders of some other developing nations.
“El Salvador still offers attractive value when compared to other stressed EM sovereigns, many of which are struggling with substantially larger fiscal deficits and external funding gaps,” Cura said in an interview.
Founded by former Fir Tree partners Aaron Stern, Elliot Ruda and an ex-Clarke Inc. executive, Michael Rapps, Converium started trading in 2021. The firm declined to disclose its position in El Salvador or how much it made off the investment. It managed about $345 million as of the end of February, according to the latest regulatory filings.
The bonds have posted an average return of 180% since last July, when accounting for price appreciation and coupon payments. That ranks them among the best performers in a broad emerging-market index compiled by Bloomberg.
Converium began to scoop up the notes in the second quarter and built its position through the summer, Cura said. The bonds traded at about 32 cents on the dollar at the end of June 2022, according to data compiled by Bloomberg.
The price recovered — most maturities trade above 65 cents — as the government repaid a bond in January, carried out two debt buybacks and hired a former International Monetary Fund official to advise in discussions with the lender.
The extra yield investors demand to hold Salvadoran sovereign debt over similar US Treasuries has more than halved in the last year. It hovers just above the 10 percentage-point threshold to be considered distressed. The country has few upcoming bond maturities.
Bukele scared off investors after he adopted Bitcoin as a legal tender alongside the US dollar and started using public coffers to buy the crypto currency.
However, he has spent less than $200 million on the digital coins, which Cura said is a small amount for a $34 billion economy.
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