Ethiopia bondholders disappointed by proposed 20% bond haircut

By Newscenta On Aug 15, 2024

A group of foreign holders of Ethiopia’s $1 billion international bond have expressed disappointment with recent government comments 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.”
The government did not respond to a request for comment.
The comments set the stage for tense restructuring negotiations in the wake of Ethiopia defaulting on its sole international bond in December and has made little headway since.
The country surprised bondholders by announcing plans earlier this month to reduce the bond principal to $800 million, indicating a 20% haircut, citing the need to match debt relief offered by official creditors.
The creditor group, which says it holds more than 40% of the bond, called for transparency and public disclosure of any assumptions made with the input of official bilateral creditors.
The East African country requested a debt rework in early 2021 under the G20 Common Framework restructuring process, but a two-year civil war, which ended in a truce in late 2022, delayed progress.
Ethiopia had 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 restructuring before the first review of its IMF programme. According to the Fund, initial reviews will be held on a quarterly basis.
The IMF did not respond to a request for comment.
Negotiating in good faith is key for the progress of any country’s IMF programme, which includes timely dialogue, information sharing and the opportunity for creditor input.
Ethiopia’s Eurobond slipped 0.3 cents in a sixth straight session of declines, being bid at 76.5 cents, Tradeweb data showed.
The security is held by major asset management firms, such as Eaton Vance, Morgan Stanley, Vanguard and BlackRock, according to EMAXX data
The bond makes up a small part of Ethiopia’s external debt.
The IMF estimates that as of end-June, external debt stood at $28.9 billion, around half of which it owed to multilateral lenders such as 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 failed to reach an agreement in formal talks with investors late last year. Back then, the government proposed to swap the existing bond for a new $1 billion issue that would be paid off starting in 2028.
“There’s no formal proposal out there so we don’t know what the government intends,” said Kevin Daly, portfolio manager at abrdn, which holds the bond but is not part of the creditor group, adding a deal would probably be found between the previous government offer and the 20% haircut proposal.
Yvette Babb, portfolio manager at William Blair, said a swift debt rework should be possible, though Ethiopia’s apparent lack of desire to issue Eurobonds down the line might make for less urgency on the government side.
“This is not a very complex case – it’s a single bond, $1 billion, the IMF parameters are pretty clear. It’s really a matter of the willingness for all parties to get this done quickly.”