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Ethiopia has made a deal to restructure its defaulted $1bn international bond after investors threatened to sue over the flaws of a G20 framework for reworking debts of poor countries.
Ethiopia’s finance ministry said on Monday that a group of bondholders had agreed to cut the face value of the debt to $880mn, after years of abortive talks and official creditor opposition that almost landed the restructuring in court.
The new deal has the “non-objection” of China, Ethiopia’s biggest official creditor, and approval by the IMF, the finance ministry said. It comes after Ethiopia secured more than $8bn of debt relief from official creditors in recent years.
Africa’s second most populous nation stopped making interest payments on the $1bn bond in 2023, one year before it was due to pay it back in full, after seeking relief under the Common Framework, a G20 process to speed sovereign debt workouts.
The country became a byword for failures of the framework as official creditors repeatedly said that a committee representing investors holding just under half of the bond was not offering enough concessions.
Before talks resumed this month, the bondholder committee said that members could press ahead with suing Ethiopia after prior warnings.
In a statement today, the bondholder committee said it accepted the deal — but revealed divisions among members on aspects of the restructuring.
Morgan Stanley Investment Management declined to join other members in criticising the restructuring process, while Farallon Capital Management said that Ethiopia was receiving more debt relief than required.
While the fund said that it had supported initial legal action, it added that “it will not maintain this position on its own behalf, so as to preserve the proper functioning of the committee”.
The deal avoids what would have been the first court case over the G20 framework after bondholders warned Ethiopia that they were ready to file lawsuits in English courts to reclaim their money.
Xuan Changneng, deputy governor of the People’s Bank of China, said last week that “co-ordinated efforts are . . . needed on legal and technical fronts to curb malicious litigation by bond investors”, in what was widely seen as a reference to Ethiopia’s bondholders.
Under the deal, bondholders will be paid about a year of missed interest, or $99mn, a new interest rate of just over 6 per cent, which is slightly less than the original bond, and a $5mn fee. Any court action would have consolidated all the missed interest into the original claim, making a restructuring harder.
Bondholders will also receive a sellable right, or “warrant”, to buy a future seven-year bond of up to $1bn, issued by Ethiopia under specific terms. The bond’s interest rate would be 4.5 percentage points above six-year US Treasuries. If Ethiopia does not go through with the bond issue, it will have to pay the warrant holders up to $90mn.
“Bondholders have successfully used the threat of legal action in the UK to wring more money out of the Ethiopian people,” said Tim Jones, policy director at Debt Justice, a charity.
Ethiopia’s economy has weathered several internal and external shocks, notching up annual growth of between 6 and 9 per cent since Abiy Ahmed became prime minister in 2018. They included a civil war in 2020–22 in the northern Tigray region, which killed up to 600,000 people.
Bondholders failed to secure a warrant sketched out in previous talks that would have offered extra payouts if Ethiopia’s export growth fared better than IMF projections.
Abiy’s government has liberalised Ethiopia’s foreign exchange regime and revived a moribund mining sector, turning gold into a significant export earner alongside traditional sources such as coffee.
Addis Ababa is in the midst of a real estate boom, although ordinary Ethiopians complain of the high cost of living and inflation that has crept back up above 11 per cent after the closure of the Strait of Hormuz.
