Addis Abeba — Ethiopia's sole Eurobond rose sharply after the government reached an agreement in principle with bondholders on a restructuring plan that would impose a 15% haircut on the defaulted debt, according to a report by Bloomberg.
The $1 billion bond, which Ethiopia defaulted on two years ago, gained nearly three cents on the dollar, adding 2.61 cents to trade at 110.09 as of 4:26 p.m. London time. The rally reflected investor reaction to the relatively modest haircut, as well as the structure of the proposed new bond, which carries a comparatively high coupon and front-loaded principal repayments.
Under the proposed terms, Ethiopia plans to issue a new $850 million bond after applying the 15% discount to the original 2024 note, according to a statement dated 2 January from White & Case LLP, which represents the borrower.
The new bond, maturing in 2029, would carry a 6.125% coupon, with an initial principal repayment of $350 million due by 15 July this year, followed by a similar repayment two years later.
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Commenting on the agreement, Smail Ait-Mahrez, a Dubai-based capital markets professional, said the deal sends a positive signal, particularly if it is viewed as "transparent, timely, and consistent with International Monetary Fund parameters," while cautioning that investors are unlikely to be overly optimistic.
Ethiopia is awaiting confirmation from the International Monetary Fund (IMF) and the official creditor committee (OCC) on whether the agreement complies with IMF program targets and restructuring terms under a separate deal with bilateral creditors, the statement said.
An IMF spokesperson described the agreement as an important step toward restoring Ethiopia's debt sustainability, adding that the Fund would assess its consistency with the objectives and parameters of the IMF-supported program in the coming days. Ethiopia secured a $3.4 billion IMF loan in 2024 and reached a staff-level agreement on the fourth program review in December.
The Ethiopia Ad Hoc Committee, representing financial institutions in the United States and Europe, said it believes the financial terms outlined in the agreement are compatible with Ethiopia's IMF program and meet the OCC's comparability of treatment requirements.
The restructuring also includes a so-called value recovery instrument (VRI), which could allow investors to recoup up to $180 million by 2037 if Ethiopia's exports perform strongly. Similar mechanisms have been used elsewhere, including in Suriname, which exited a three-year default in 2023 after introducing an oil-linked VRI.
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Ethiopia's main exports are coffee and gold. Rising global gold prices--up about 60% over the past year--have boosted inflows into commodity-exporting countries. Central bank data show Ethiopia earned $3.45 billion from gold exports and $2.65 billion from coffee in the fiscal year ending 7 July.
Notably, the deal includes a downside adjustment, making it the first restructuring under the G20 Common Framework in which investors could receive lower payouts if economic performance falls short. Under the proposed terms, investors could lose up to $100 million in the final amortization payment in July 2029 if goods exports amount to less than 85% of IMF forecasts for the two preceding fiscal years.
Including a downside scenario is seen as key to securing approval from the OCC, co-chaired by China and France. The committee previously rejected an October proposal that offered bondholders additional gains if the economy outperformed expectations, without providing safeguards in the event of underperformance, Bloomberg reported.
