Bondholders Threaten Legal Action as Ethiopia’s Eurobond Restructuring Stalls

Ethiopia’s effort to restructure its one billion US dollar Eurobond has entered a more contentious phase, with a major group of private investors signalling plans to pursue legal action after official bilateral creditors blocked a preliminary deal agreed earlier this year.

The dispute follows a decision by the Official Creditors Committee (OCC), co-chaired by China and France, to reject the draft restructuring agreement between Ethiopia and its bondholders, citing non-compliance with the G20 Common Framework’s “comparability of treatment” principle. The Ethiopian government has since confirmed it will reopen negotiations with investors.

Under the rejected proposal, bondholders would have accepted a 15 percent reduction in principal through an exchange into a new 850 million dollar bond maturing in 2029, alongside a value recovery instrument that would have linked future payouts to Ethiopia’s export performance. Official creditors argued that the structure would have resulted in lighter losses for private investors compared with bilateral lenders, particularly in light of Ethiopia’s improving macroeconomic indicators.

Representing over 45 percent of the total outstanding Eurobond, the ad hoc bondholder committee has labeled the OCC’s stance as “unreasonable.” The committee warned that this decision risks extending the uncertainty surrounding Ethiopia’s debt resolution. If negotiations do not yield an acceptable result, the group stated its intention to pursue legal action through the English courts to enforce the payment of both outstanding principal and interest.

The OCC’s secretariat countered that stronger export earnings and improving reserve prospects weaken the case for contingent instruments such as value recovery mechanisms, which could significantly reduce the effective burden on bondholders relative to official creditors. Civil society groups supporting debt relief also backed the OCC’s stance, arguing that the rejected deal would have left Ethiopia facing excessive repayment obligations at the expense of essential public services.

Ethiopia defaulted on the Eurobond in December 2023 and subsequently reached an agreement with official creditors in mid-2025, clearing the way for talks with private investors. Resolving the Eurobond is a key condition for restoring debt sustainability under the country’s IMF-supported reform programme.

Market reaction to the latest developments has been cautious. The Eurobond price slipped further following the OCC’s announcement, extending recent losses as investors reassess the likelihood of a timely resolution. The International Monetary Fund has meanwhile revised upward its projections for Ethiopia’s export earnings and foreign reserves, driven largely by strong gold and coffee exports, improving the country’s external position even as debt talks remain unresolved.

Analysts say the standoff underscores the growing complexity of sovereign debt restructurings, where divergent interests between official creditors, private investors, and domestic policy priorities can significantly delay outcomes.

Source: Reuters