Ethiopia expects ‘tangible progress’ on deal with creditor nations by December

NAIROBI, Oct 1 (Reuters) – Ethiopia expects “tangible progress” by December towards an agreement in principle with creditor nations, it said in a presentation to private bondholders on Tuesday, as it seeks to put its debt rework on track.

Ethiopia became Africa’s third default in as many years in December 2023, but progress on debt restructuring was on hold as it negotiated a $3.4 billion programme with the International Monetary Fund (IMF).

“Once a (memorandum of understanding) is agreed, the Republic of Ethiopia will sign bilateral agreements with each creditor, reflecting the terms of the MoU,” the government said in the presentation.

It invited bondholders to negotiate in parallel with the creditor nation talks in order to expedite the restructuring.

The IMF said it had no role in the negotiations while the Paris Club of lending nations did not immediately respond to a request for comment.

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Ethiopia’s state minister of finance Eyob Tekalign gave the presentation with a representative from the government’s legal firm White & Case also taking part, said one investor who participated in the call.

Sketching out “illustrative” terms of a bond restructuring in the presentation, Ethiopia said an 18% haircut on the nominal value of its outstanding dollar bond, excluding past due interest, would be compatible with debt sustainability targets.

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A haircut refers to a hit taken by creditors.

A new bond issued to holders as part of the rework would have a 5% coupon and mature in June 2031.

Ethiopia’s $1 billion bond was down 0.2 cent at 77.2 cents on the dollar, Tradeweb data showed.

A group of foreign holders of about 40% of the East African nation’s bond remained “extremely disappointed the authorities continue to talk about haircuts,” said a source close to the group, but they will continue to engage with the government.

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The creditor group has said it believes a haircut is not necessary since Ethiopia faces a liquidity issue, not a solvency problem. The government has not commented on that view.

The IMF estimates that as of end-June, external debt stood at $28.9 billion, around half of which it owed to multilateral lenders like the IMF, World Bank and 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. Ethiopia owes under $2 billion to Paris Club rich creditor nations.

Ethiopia secured the IMF deal on July 29, after it floated its birr currency, a precondition for the deal that saw it slump by 30% against the dollar.

Ethiopia and the IMF reached last week a staff level agreement on the first review of the reforms programme, potentially unlocking a $345 million disbursement when the fund’s board signs off.

The Reuters