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Ethiopia has reportedly reached a preliminary agreement with key bondholders to restructure its defaulted US$1 billion international bond, marking a significant step towards resolving a debt crisis that has weighed on the country’s economy for several years.
The Ministry of Finance said the proposed agreement, reached after months of negotiations, will see Ethiopia issue a new US$880 million bond that will be repaid in instalments, with the final payment due in 2029 at an interest rate of 6.15 percent.
Under the proposal as reported by Reuters, the government will also settle in full the three coupon payments it missed after defaulting, amounting to US$99.375 million, in addition to paying a consent fee to bondholders.
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The agreement includes a New Money Warrant, which gives bondholders the option to participate in a future Ethiopian bond issuance of up to US$1 billion at a market-based interest rate.
Alternatively, the government may redeem the warrant through a cash payment of up to US$90 million.
The Finance Ministry said the structure of the warrant had received the approval of the International Monetary Fund, which determined that it is consistent with Ethiopia’s debt sustainability objectives.
It added that the co-chairs of Ethiopia’s Official Creditor Committee, representing bilateral lenders including China and France, had also raised no objection to the proposed arrangement.
The agreement follows a lengthy and complex debt restructuring process that has involved negotiations between the government, official creditors and private bondholders.
Ethiopia defaulted on the international bond in December 2023 after failing to make a US$33 million coupon payment.
An earlier restructuring agreement reached in January this year collapsed after official creditors rejected parts of the proposal, while bondholders turned down a revised offer in May.
The Ad Hoc Committee negotiating on behalf of investors represents holders of about 45 percent of the outstanding bonds.
The government said it intends to implement the restructuring through a bond exchange offer in the coming months once the remaining non-financial terms have been finalised.
Financial markets responded positively to the announcement, with Ethiopia’s international bonds rising by more than two cents to 107.625 cents on the dollar, their highest level since January, reflecting growing investor confidence that the country is moving closer to resolving its sovereign debt challenges.
The preliminary agreement is expected to ease uncertainty surrounding Ethiopia’s debt outlook and support broader efforts to restore investor confidence and strengthen macroeconomic stability.
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