Ethiopia’s Revised Eurobond Restructuring Proposal Rejected by Bondholders
Debt Negotiations Face Fresh Setback as Government Seeks Alternative Solutions
Ethiopia’s efforts to restructure its defaulted Eurobond have encountered another hurdle after a committee representing bondholders rejected the government’s revised debt restructuring proposal, prolonging uncertainty over the country’s first sovereign international debt workout.
The Ministry of Finance announced that negotiations held between May 6 and May 27 with an ad hoc committee representing holders of Ethiopia’s 6.625 percent Eurobond failed to produce an agreement despite revisions made to address concerns raised by official creditors.
The rejection comes months after Ethiopia and bondholders reached an agreement in principle in January 2026. However, the deal was later challenged by Ethiopia’s Official Creditor Committee, which determined that the proposal did not meet the “Comparability of Treatment” requirements under the G20 Common Framework for debt restructuring.
Ethiopia Removes Controversial Recovery Instrument
At the center of the dispute was a value recovery instrument linked to Ethiopia’s future economic performance.
Official creditors argued that Ethiopia’s rapidly evolving economic environment made the instrument difficult to assess and potentially inconsistent with debt treatment requirements.
In response, Ethiopian authorities revised the proposal by removing the value recovery mechanism and replacing it with a more conventional restructuring package that was subsequently reviewed by the Official Creditor Committee.
According to the Ministry of Finance, creditor representatives confirmed that the revised proposal complied with comparability requirements.
Key Terms of the Revised Offer
Under the revised proposal, bondholders would exchange their existing claims for a new bond valued at 880 million US dollars, representing a 12 percent reduction in principal.
The proposed bond would:
- Mature in July 2029
- Carry a 6.15 percent annual interest rate
- Include principal repayments spread across four years
- Repay approximately 99.4 million US dollars in missed coupon payments
The repayment schedule included:
- 180 million USD in July 2026
- 100 million USD in July 2027
- 300 million USD in July 2028
- 300 million USD in July 2029
Bondholders were also offered a consent fee equal to 0.5 percent of the original bond value.
Designed to Support Ethiopia’s Reform Program
The repayment structure was designed to provide Ethiopia with temporary fiscal breathing room during the early years of its ongoing economic reform program.
The proposal effectively created a two-year debt service grace period, with no Eurobond-related payments scheduled during the 2024/25 and 2025/26 fiscal years.
Debt service obligations would then rise sharply in 2026/27 before gradually declining as the repayment profile shifted from interest-heavy obligations toward principal repayments.
According to government calculations, the revised proposal would have provided deeper debt service relief during the IMF-supported reform period while extending repayment duration and improving several debt sustainability indicators compared to the benchmark established by official creditors.
Government Exploring Alternative Options
Despite these adjustments, the bondholder committee rejected the proposal, bringing the restricted negotiation period to an end.
The Ministry of Finance expressed regret over the outcome but reaffirmed its commitment to pursuing a market-based solution consistent with Ethiopia’s reform agenda and international debt restructuring requirements.
Officials indicated that alternative options, including a possible exchange offer or other market-based transactions, are now being evaluated.
Ethiopia’s Debt Restructuring Journey Continues
Ethiopia became the third African country after Zambia and Ghana to default on Eurobond obligations during the recent global debt crisis after missing a 33 million USD coupon payment in December 2023.
Since then, the country has been pursuing debt treatment under the G20 Common Framework while implementing major economic reforms supported by the International Monetary Fund, including foreign exchange liberalization, fiscal adjustments, and broader macroeconomic restructuring measures.
The latest setback means Ethiopia remains among a small group of developing economies still working to complete a comprehensive sovereign debt restructuring process amid challenging global financial conditions.