A group of foreign holders of Ethiopia’s $1 billion international bond said on Wednesday it was disappointed with recent comments from the government regarding a possible 20% principal haircut on their holdings.
The group “does not view any such haircut as being consistent with its evaluation of Ethiopia’s economic fundamentals”, it said via email, calling the government’s recent public statements “incompatible with a good-faith approach to debt restructuring”.
Ethiopia defaulted on its sole international bond in December and has made little headway in its restructuring since.
The country took bondholders by surprise when it announced earlier this month that it aimed to reduce the principal of the bond to $800 million, which would indicate a 20% haircut, citing the need to match debt relief offered by official creditors.
The government did not immediately respond to a request for comment on the creditor statement.
The creditor group, which says it holds more than 40% of the bond in aggregate, called for “transparency and public disclosure” of any assumptions made with the input of official bilateral creditors.
The East African country initially requested a debt rework with official creditors in early 2021 under the G20 Common Framework restructuring process, but a two-year civil war, which resolved in a truce in late 2022, delayed progress.
Ethiopia’s fresh push on the bond restructuring comes after the country secured an agreement with the International Monetary Fund for a new $3.4 billion financing program in July.
The government at the time said it planned to finalise the debt restructuring before the first review of its programme with the Fund. According to the IMF statement, initial reviews of its loan programme will be held on a quarterly basis.
The IMF’s criteria for good faith negotiations include timely dialogue and sharing of relevant information as well as opportunity for input from creditors.
The $1 billion Eurobond was down less than a cent on Wednesday, trading at 77 cents on the dollar. It makes up only a small part of Ethiopia’s total external debt.
The IMF estimates that by end-June, external debt stood at $28.9 billion – around half of which it owed to multilateral lenders such as the IMF, the World Bank and the African Development Bank.
Of the $12.4 billion owed to bilateral lenders, China accounts for $7.4 billion and Saudi Arabia just over $1 billion. The country owes under $2 billion to the Paris Club of rich creditor nations.
Ethiopia failed to reach an agreement when it held formal talks with investors in November. The statement following the talks showed the country had proposed to bondholders to swap the existing bond for a new $1 billion issue that would be paid off between 2028 and 2033.
The country has struggled for years with a shortage of foreign currency. The IMF estimates its foreign currency reserves in 2023/2024 stood at half a month of import cover – well below the traditional rule of thumb that they should generally cover at least three months of imports.
