DAKAR, Aug 23 – Ethiopia has moved closer to resolving its sovereign default after its official creditors approved a preliminary agreement between the government and private bondholders to restructure the country’s $1 billion Eurobond.
The Official Creditor Committee, co-chaired by France and China, reviewed the agreement in principle reached between Ethiopia and bondholders in June. The bond was originally due in 2024 after Ethiopia entered a debt restructuring process under the G20 Common Framework.
In a letter to Ethiopia’s Finance Ministry, the committee said, “The OCC considers that, at this stage, the AIP is compliant with the principle of comparability of treatment and the Memorandum of Understanding agreed with Ethiopia.”
The assessment clears the way for the Ethiopian government to proceed with implementation of the draft restructuring agreement, according to the Finance Ministry. The approval follows earlier disagreements over proposed terms, including a January restructuring proposal that bilateral creditors determined did not meet previously agreed debt-relief conditions.
However, official creditors raised concerns over a feature of the agreement known as the New Money Warrant. The instrument gives bondholders the option to participate in a future Ethiopian bond issuance of up to $1 billion at a market-linked interest rate. Ethiopia would also have the option to settle the warrant in cash, subject to a maximum payment of $90 million.
According to a Reuters report, the OCC warned that the warrant could ultimately give private creditors more favourable treatment than bilateral lenders. According to the committee, “Should the New Money Warrant be shown to grant excessive benefits to bondholders, such as through repurchase or redemption of the instrument, the OCC would consider the implications for the comparability of treatment.”
The warning reflects a central principle of Ethiopia’s restructuring process, under which private and official creditors are expected to receive comparable treatment. If the warrant results in significantly better terms for bondholders, bilateral creditors could be required to reconsider their own restructuring arrangements.
Market participants have viewed the warrant as a key mechanism for breaking the deadlock between Ethiopia and its bondholders. Official creditors acknowledged its importance but made clear that approval of the current arrangement would not establish a template for future restructurings.
The OCC said it “will closely monitor its implementation before considering another potential replication of such an instrument in the future.”
Ethiopia began restructuring its external debt under the G20 Common Framework in 2021 and defaulted on its sole international bond in 2023. It remains the only country still undergoing the Common Framework process.
The restructuring has become a closely watched test of the framework, which was created during the Covid-19 pandemic to provide a coordinated mechanism for resolving debt distress in developing economies. Negotiations involving Western governments, China and private creditors have, however, frequently been prolonged by disagreements over the distribution of losses and the terms offered to different creditor groups.
The Ad Hoc Bondholder Committee, representing about 45% of investors in Ethiopia’s Eurobond, said in June that the restructuring process had exposed significant shortcomings in the Common Framework. The committee had not immediately responded to requests for comment.
The latest agreement still requires approval from bondholders before it can become effective. If approved and implemented, the restructuring would mark a significant step towards Ethiopia’s exit from default and could provide a clearer path for the country to rebuild access to international capital markets.
