Ethiopia’s finance minister Eyob Tekalign said the war-torn country had sufficient capacity to pay the US$33m coupon on its sole outstanding Eurobond issue due last Monday but had chosen not to, so it could conclude restructuring discussions with its wider set of creditors more swiftly.
Tekalign was speaking on a call with more than 100 investors holding its US$1bn of 6.625% December 11 2024 Eurobonds on Thursday, after it had made the choice to default on the payment.
The bid price of the notes ticked up six points over the week to 67 cents in the dollar, the highest price since August, despite the non-payment of the coupon.
Ethiopia first said it wanted to restructure its debt over two years ago and last month reached agreement with its official sector creditors committee. Official sector lenders and other commercial creditors had already agreed to a suspension of debt servicing until the end of next year.
Ethiopia now wants to discuss a similar restructuring with its bondholders before the notes mature in a year’s time. The repayment would use up all the country’s US$828m of foreign exchange reserves.
“Ethiopia's plan is to involve the bondholders to solve the external debt problems once and for all,” it said. The country is using the common framework for its talks, whereby private sector creditors follow the lead from the official sector agreement and both treatments should be comparable.
Ethiopia first wants to conclude discussions with the International Monetary Fund about a possible four-year programme “early next year” before setting out concrete proposals to creditors. This will set out more precisely what debt relief is expected from both parties.
Earlier in the month, talks had broken down between the finance ministry and the advisers to the bondholder committee, Newstate Partners and law firm Weil Gotshal and Manges. They represent holders of 25% of the notes by value.
Ethiopia had proposed extending the maturity of the notes by at least four years to December 2028 and amending the interest rate to 5.5% from the current 6.625%. It added that 2.5% would be paid via PIK notes over the next four years. The bonds then would be repaid over four years semi-annually to January 2032.
The bondholder advisers had proposed repayments over three semi-annual periods from July 2028 to July 2029, and keeping the coupon unchanged and in cash. In addition, bondholders accepting the changes would receive a 2% consent fee. They also wanted extra protection against future defaults.
“The committee views the authorities’ decision not to make the coupon payment as both unnecessary and unfortunate, particularly in light of both the very short notice in advance with which the authorities ultimately decided to engage in discussions with the committee,” they said.
Lazard and law firm White Case are advising the government.
Patrick Curran, analyst at Tellimer Research, said the government proposal suggested a net present value cut of “just over 25%” and said that explained why the bonds had risen in recent days as investors saw “a floor on recovery value”.
Following the non-payment, Fitch downgraded the country by one notch to C. There is a 14-day grace period, meaning that the official default would be on December 25. After that, Fitch could lower its rating again to restricted default.