Ethiopia bondholder call scheduled for Thursday as default looms

Ethiopian Prime Minister Abiy Ahmed attends the 60th anniversary of the Organization of African Unity (OAU)/African Union (AU) at the African Union Commission (AUC) Headquarters in Addis Ababa, Ethiopia May 25, 2023. REUTERS/Tiksa Negeri/File Photo
Ethiopian Prime Minister Abiy Ahmed attends the 60th anniversary

According to a senior official in the Ministry of Finance, Ethiopia will arrange a teleconference with its foreign bondholders on Thursday. This comes as the government is rapidly approaching default, having announced the previous week that it would be unable to pay a bond coupon of $33 million due on Monday.

On Friday, the Ministry of Finance said discussions with bondholders had ended. The reason for this was that the two parties could not reach a consensus over the time that should be allowed to extend the maturity and spread out the repayments of the single $1 billion international bond expiring in December 2024.

If the bond coupon is not paid, Ethiopia, which had requested debt restructuring by the G20 Common Framework at the beginning of 2021, will be on track to default once the fourteen-day grace period has passed.

As of Monday, the bond will be recorded as trading “flat” in the EMBI index family, which means that it will not have any interest accrued, according to JPMorgan, which stated that this is the norm that would be followed.

Until this point, Ethiopia had diligently met its interest obligations on its foreign bonds.

Despite this, the Ministry of Finance stated on Monday that it would “seek broadly similar treatment” from bondholders. This was in response to the fact that it had recently negotiated debt service suspension agreements with government creditors, notably China, and specific commercial lenders.

It would be essential to treat all of our creditors fairly; the ministry stated in a statement that appeared to be a repetition of statements made the previous week that a payment was not likely.

A source familiar with the situation informed Reuters that some holders of the foreign bonds hadn’t received payment by the time the clock struck 1700 GMT.

However, in separate comments made to Reuters on Monday, Eyob Tekalign, the state minister of fiscal policy and public finance, stated that “the intention of the authorities is to remain current on our obligations.”

Thursday was the day that he said there would be a call with investors who were holding the foreign bond.

As a result of the combined costs of the COVID-19 pandemic and the civil war in the northern Tigray area of Ethiopia that concluded in November 2022, the country, which has been regarded for a long time as having one of the most promising economies in Africa, is currently having difficulty paying its commitments.

According to the data provided by Tradeweb, the bond price on Monday first decreased by more than 1.8 cents on the dollar before reversing previous losses to add about 2 cents. It was bid at 62.5 cents during the 1929 GMT zone.

The statement released on Friday included outlines of the numerous offers exchanged between the government of Ethiopia and its bondholders. These proposals demonstrated disparities in expectations regarding the maturity and discrepancies in the size of the coupon, the conditions, and the provisions.

The government stated on Friday that Ethiopia’s final proposal included a coupon of 5.5% and an amortizing structure comprising eight equal installments covering the period from July 2028 to January 2032. There was no provision in the proposal for a capital write-down, which contributed to maintaining bond prices.

According to the ministry, the most recent proposal from the bondholder group requested a coupon rate of 6.625% and a substantial acceleration of the amortization period between July 2028 and July 2029.

Bondholders also requested a loss restoration clause, which would reinstate their claims to their levels before the restructuring. This provision would be implemented if Ethiopia were to have another default in the future, which would impact the bonds that were issued as part of the current rework.

“That was a red line,” claimed one of the bondholders concerned. In its proposal, the government did not anticipate the inclusion of such a provision.

“The discussion with a few bondholders did not bear fruit as we did not agree on terms,” according to Eyob.

“We are confident that we can work out a plan that works for both of us and has a good chance of being accepted by the OCC (hence the need for broadly similar treatment),” he said, referring to the official creditor committee. “We are confident that we can figure out a plan that works for both of us.”

Additionally, Ethiopia requested a loan from the International Monetary Fund (IMF) for four years. The IMF has stated that conversations with the government are now taking place and that a staff visit to the country is “likely to occur early next year.”

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