Ethiopia's official creditors clear Eurobond restructuring deal

Ethiopia's official creditors have given their approval to a preliminary agreement between the government and private investors to restructure its $1 billion Eurobond, the finance ministry announced on Friday. The move brings the East African nation a step closer to emerging from its default.

The agreement in principle, struck with bondholders in June, aims to restructure the bond that matured in 2024. This followed several earlier attempts, including a January proposal that bilateral creditors deemed non-compliant with previously agreed debt relief terms.

The Official Creditor Committee (OCC), co-chaired by France and China, reviewed the deal and concluded that, at this stage, it aligns with the principle of comparability of treatment and the Memorandum of Understanding agreed with Ethiopia. With this approval, the government will proceed with implementing the draft agreement.

However, the committee expressed caution regarding a specific element of the deal: the "New Money Warrant." This instrument gives bondholders the option to buy into a future Ethiopian bond of up to $1 billion at a market-linked interest rate. The government also retains an option to settle the warrant in cash, capped at $90 million.

The OCC warned that if the warrant grants excessive benefits to bondholders, it could force bilateral creditors to adjust their own terms to maintain comparability. The committee stated it would closely monitor the warrant's implementation and would not consider it a precedent for future restructurings.

Ethiopia is the only country still undergoing debt rework under the G20's Common Framework, a process it opted into in 2021. The country defaulted on its sole Eurobond in 2023. Investors and campaigners view the resolution of this default as a key test for the Common Framework, which was launched during the COVID-19 pandemic to streamline debt workouts but has faced challenges due to divisions among Western lenders, China, and private investors.

The Ad Hoc Bondholder Committee, representing 45% of investors in Ethiopia's bond, had previously stated that the restructuring exposed deep flaws in the Common Framework. The deal still requires approval from bondholders before it can take effect.