A group of foreign investors holding Ethiopia’s $1 billion international bond expressed deep disappointment on Wednesday over the government’s recent proposal to cut the bond’s principal by 20%. The group, representing over 40% of the bondholders, argues that such a haircut is unjustified given Ethiopia’s economic fundamentals.
The bondholders characterized the government’s public statements as a breach of good faith in the ongoing debt restructuring process. Despite multiple requests, the Ethiopian government has yet to provide a formal response to the investor group’s concerns.
Ethiopia defaulted on its sole international bond in December and has faced significant challenges in restructuring its debt since then. The country’s two-year civil war, which ended in late 2022, further complicated the process.
The proposed 20% haircut is linked to the debt relief provided by official creditors. However, the bondholder group is demanding transparency and public disclosure of the calculations and assumptions underlying this decision.
Ethiopia secured a $3.4 billion financing program from the International Monetary Fund (IMF) in July, contingent on the successful completion of debt restructuring. While the IMF has outlined criteria for good faith negotiations, including open dialogue and information sharing, it has yet to comment on the specific situation.
The price of the $1 billion Eurobond dropped by 0.75 cents on Wednesday, reflecting investor concerns. Ethiopia’s total external debt is estimated at $28.9 billion, with a significant portion owed to multilateral lenders and China.
Previous negotiations between the government and investors last year failed to yield an agreement. While Ethiopia proposed a debt swap involving a new $1 billion bond, the details of the government’s current plans remain unclear.
Bondholders and analysts believe that a compromise between the government’s proposed haircut and the previous debt swap offer might be necessary to reach a resolution. Ethiopia has been grappling with a severe foreign currency shortage,which has further exacerbated its economic challenges.