The Ministry of Finance announced today that it has concluded “restricted negotiations” with an Ad Hoc Committee representing approximately 45 percent of holders of the 6.625 percent notes due 2024.
According to the ministry, the talks, held between June 5 and June 28, “yielded an agreement in principle “between Ethiopia and the Ad Hoc Committee on the principal financial terms of a restructuring of the 2024 Notes.
Under the proposed restructuring, holders of the defaulted Eurobond would exchange their notes for a new USD 880 million bond, reflecting a 12 percent haircut on the principal. The replacement bond will mature on July 15, 2029, carry a fixed coupon of 6.15 percent payable semi-annually, and begin accruing interest from December 11, 2024. Principal will be repaid in four installments: USD 180 million in July 2026, USD 100 million in July 2027, and USD 300 million each in July 2028 and July 2029.
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Bondholders would also receive the three missed coupon payments totaling USD 99.375 million in full upon settlement, together with a consent fee equivalent to 0.5 percent of the original nominal value of the notes.
The biggest change in the latest agreement is the introduction of a New Money Warrant, replacing the performance-linked Value Recovery Instrument that caused the previous deal to collapse. The warrant would be issued alongside the new bond and would give bondholders the right to buy up to USD 1 billion of a future Ethiopian international bond on pre-agreed terms. The future bond would have a seven-year maturity and be priced at 450 basis points above the yield on six-year U.S. Treasury securities at the time of issuance. Ethiopia would also have the option to buy back the warrant instead of issuing the future bond, with any redemption payment capped at USD 90 million.
The warrant also gives Ethiopia the option to redeem the instrument instead of issuing the future bond, subject to an agreed valuation mechanism and a redemption cap equivalent to nine percent of its notional value.
According to the Ministry, the International Monetary Fund has reviewed the revised structure and found it consistent with Ethiopia’s debt sustainability framework. The co-chairs of the Official Creditor Committee have also issued a non-objection, pending approval by the committee’s wider membership.
The government and bondholders will now negotiate the remaining non-financial terms before launching a formal exchange offer and/or consent solicitation in the coming months.
Ethiopia defaulted on its only international sovereign bond in December 2023 after missing a coupon payment and has since been restructuring the debt under the G20 Common Framework. A previous agreement in principle announced in January collapsed after official creditors objected to a value recovery mechanism linked to Ethiopia’s future export performance, forcing both sides back to the negotiating table.
