Ethiopia Reaches New Debt Deal with Eurobond Holders After Earlier Agreement Collapsed

Ethiopia has reached a new agreement in principle with holders of its one-billion-dollar Eurobond, reviving efforts to complete the country’s long-running sovereign debt restructuring after an earlier deal was rejected by official creditors.

The Ministry of Finance announced that negotiations with an Ad Hoc Committee representing bondholders have resulted in a revised agreement in principle, following weeks of discussions involving legal and financial advisers from both sides.

The latest agreement replaces an earlier understanding reached in January, which was later rejected by Ethiopia’s Official Creditors Committee (OCC) after officials concluded it did not satisfy the G20 Common Framework’s comparability of treatment requirements.

According to the Ministry, the new agreement includes provisions for a detachable warrant that would give eligible investors subscription rights to participate in a future international bond issuance. The warrant would be tradable independently of Ethiopia’s existing 2014 Eurobond.

While the financial terms of the restructuring have not been disclosed, officials said the revised agreement has already received approval from the International Monetary Fund (IMF) and the co-chairs of Ethiopia’s Official Creditors Committee—China and France.

The agreement, however, remains subject to approval by the remaining members of the creditor committee before it can move toward implementation.

The development marks an important step in Ethiopia’s efforts to restructure its external debt under the G20 Common Framework, a process the country entered in 2021 after facing mounting debt servicing pressures and foreign exchange constraints.

Ethiopia defaulted on its one-billion-dollar Eurobond in late 2023 after opting not to make a scheduled coupon payment while negotiations with creditors were underway. Since then, the government has sought to reach a restructuring agreement acceptable to both official bilateral creditors and private bondholders.

Negotiations have proven difficult because the Common Framework requires comparable debt treatment across different creditor groups. Official creditors previously rejected Ethiopia’s first agreement with bondholders, arguing that the proposed restructuring did not provide debt relief broadly equivalent to that offered by bilateral lenders.

The revised agreement suggests negotiators have worked to address those concerns while preserving market-based features intended to provide investors with potential future value through subscription rights attached to a new bond issuance.

A successful conclusion to the restructuring would remove one of the country’s major sovereign debt uncertainties and could strengthen investor confidence as Ethiopia continues implementing broader macroeconomic and financial sector reforms.

source: The reporter