Ethiopia Moves Closer to Eurobond Default Exit as Official Creditors Back $1B Restructuring

Official creditors approve preliminary bondholder deal but warn a new-money warrant could give private investors preferential treatment

Ethiopia has moved closer to resolving its sovereign debt default after its official creditors approved, in principle, the government’s proposed restructuring of its US$1 billion Eurobond, the Ministry of Finance said.

The Official Creditor Committee (OCC), co-chaired by France and China, determined that the preliminary agreement reached between Ethiopia and private bondholders is, at this stage, consistent with the principle of comparability of treatment and the debt-relief terms agreed between Ethiopia and its official creditors.

The decision clears the way for the government to proceed with implementation of the draft restructuring agreement, although bondholders must still approve the deal before it becomes effective.

A Deal Years in the Making

Ethiopia reached an agreement in principle with its Eurobond holders in June 2026 after several previous attempts to restructure the bond failed.

The US$1 billion bond was originally due in 2024. Ethiopia subsequently defaulted on the bond in 2023, making it the latest African sovereign to enter default after Ghana and Zambia.

The country began restructuring its external debt under the G20 Common Framework in 2021 and remains the only country still undergoing the process.

The government and its bilateral creditors finalised a separate agreement last year to restructure the official portion of Ethiopia’s external debt.

The latest OCC decision therefore represents an important step toward completing the private-creditor side of the restructuring.

New-Money Warrant Raises Concern

Despite approving the preliminary agreement, official creditors raised concerns over a component known as the New Money Warrant.

The instrument gives existing bondholders the option to participate in a future Ethiopian bond issuance of up to US$1 billion, at a market-linked interest rate.

Ethiopia would alternatively have the option to settle the warrant in cash, subject to a cap of US$90 million.

The OCC warned that the warrant could ultimately provide bondholders with benefits that exceed those received by official creditors.

If that happens, bilateral creditors could seek adjustments to their own restructuring terms under the principle of comparable treatment.

The official creditors said they would therefore monitor how the warrant is implemented before considering whether similar instruments could be used in future restructurings.

Warrant Helped Break the Deadlock

The warrant appears to have played an important role in breaking the prolonged stalemate between Ethiopia and its private creditors.

The government had previously struggled to secure an agreement acceptable to both bondholders and official creditors. An earlier restructuring proposal in January was rejected by bilateral creditors because they determined that it did not comply with the debt-relief terms already agreed with Ethiopia.

The June agreement represented a breakthrough, providing a framework that could now move toward implementation following the OCC’s preliminary endorsement.

Ethiopia’s Common Framework Test

The restructuring has broader significance beyond Ethiopia.

Ethiopia is the only remaining sovereign undergoing the G20 Common Framework process, which was created during the COVID-19 pandemic to make sovereign debt restructurings more coordinated and predictable.

Its implementation has faced challenges, particularly over the coordination of Western governments, China, and private creditors.

Ethiopia’s restructuring is therefore being closely watched by investors and debt-relief advocates as a test of whether the Common Framework can deliver a workable solution when a country’s debt is spread across different classes of creditors.

The Ad Hoc Bondholder Committee, representing about 45 percent of Ethiopia’s bondholders, has previously argued that the restructuring process exposed significant weaknesses in the Common Framework.

Default Exit Still Not Complete

The OCC’s approval does not by itself end Ethiopia’s default.

The restructuring agreement still needs to be approved by bondholders before it can take effect.

If investors approve the agreement and the restructuring is implemented, Ethiopia would take a major step toward resolving the default on its only international sovereign bond and completing another critical stage of its external debt restructuring.

For the government, the deal could also improve its prospects of eventually returning to international capital markets, although the terms of the restructuring and the treatment of the new-money warrant will remain closely watched by both official and private creditors.

Source: Reuters