London, Jan 6 – Ethiopia’s sole international bond jumped sharply on Tuesday after the government reached an agreement in principle with bondholders on a debt restructuring that would impose a 15% haircut on the $1 billion note it defaulted on two years ago.
The bond rose almost three cents on the dollar, gaining 2.61 cents to trade at 110.09 in London afternoon trading. The rally reflects investor optimism over the relatively mild losses and expectations that the new bond to be issued under the proposed terms will offer a higher coupon with front-loaded principal repayments.
Ethiopia has been working to restructure its external debt as it grapples with foreign currency shortages, elevated inflation and mounting pressure on public finances. The outcome of negotiations with private creditors has been closely watched as a test of the country’s ability to restore debt sustainability and rebuild credibility in international capital markets.
Market participants said the proposed terms compare favorably with recent sovereign restructurings, many of which have resulted in significantly deeper haircuts for investors. The deal suggests Ethiopian authorities are seeking to balance fiscal relief with the need to maintain access to future external financing.
