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Ethiopia’s only international government bond slipped in price on Monday after credit ratings agency S&P Global Ratings downgraded it to “Default” after the east African country failed to make a key ‘coupon’ payment.

The $1 billion bond, which matures in December 2024 with a full principal repayment known as a bullet payment, dipped 0.4 cents on the dollar to 66.5 cents having jumped roughly 10% since the start of the month.

Ethiopia, which is struggling with low foreign currency reserves in the aftermath of a civil war, has not paid the $33 million coupon payment that was due Dec. 11 and said it will not in a position to pay it before its 14-day “grace period” ends.

“We view the nonpayment of interest and the statement that the government would not honor its debt service obligations within the stipulated grace period as a default on its external commercial debt,” S&P Global said on Friday.

As well as downgrading the bond itself to default, it cut Ethiopia’s overall foreign currency ratings to “Selective Default” though it also kept its local currency ratings on the country at “CCC/C”.

Africa’s second most populous country, Ethiopia requested debt relief under the G20’s Common Framework in early 2021, but progress was initially delayed by a two-year civil war with Tigray rebel forces that ended in November 2022.

Ethiopia, which is trying to get an International Monetary Fund (IMF) bailout loan, has agreed separate debt service suspension deals with China and the rest of its official bilateral lenders.

Officials told bondholders in a call on Dec. 15 that the $33 million bond coupon was affordable, but that it was not paying in order to treat all its creditors equally.

Ethiopia is keen to avoid the fate of Zambia, whose official creditors including China rejected a deal it reached with its bondholders over concerns it was not comparable to debt relief they had offered.

Fitch, another major credit rating agency, downgraded Ethiopia further last week and said it would give it a “Restricted Default” rating if the coupon wasn’t paid by the end of the grace period.

Credit rating agencies make their own judgements about if and when a default has occurred. Bondholders usually wait until all grace periods have passed, however, before pursuing legal options or claiming on debt insurance policies known as Credit Default Swaps. (Reporting by Rachel Savage, Editing by Marc Jones and Toby Chopra)

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