Ethiopia Faces Default as $33 Million Bond Interest Payment Deadline Approaches

Ethiopia stands at the precipice of default as a looming $33 million bond interest payment deadline approaches.

The East African nation, grappling with a fragile external position and dwindling foreign-exchange reserves, has informed bondholders that it cannot meet the forthcoming interest payment.

Last week, the Ethiopian government engaged in restricted discussions with holders of its $1 billion Eurobonds.

The Finance Ministry issued a statement late Friday, explaining the nation’s inability to fulfill the $33 million coupon obligation due to its fragile external position and significantly lower foreign-exchange reserves.

The clock is ticking for Ethiopia, with a 14-day grace period before default, as stipulated in the bond’s prospectus.

The government aims to renegotiate its obligations through the Group of 20’s Common Framework, following the restructuring paths of Zambia and Ghana.

Ethiopia’s efforts to reach an emergency funding and economic program with the International Monetary Fund (IMF) gain urgency, setting the parameters for debt restructuring.

With a deadline of March 31 imposed by official creditors from the Paris Club, the nation faces the potential nullification of a debt-service suspension agreed upon last month.

Fitch Ratings, in contrast to the government’s stance, anticipated the payment of the due coupon.

In response to Ethiopia’s decision not to make the payment, an Ethiopia Ad Hoc Bondholder committee expressed disappointment, deeming it both unnecessary and unfortunate.

The Ethiopian government plans to present a proposal related to the eurobond in a forthcoming call with global investors, shedding light on its envisioned terms, including a four-year amortization period and a proposed coupon rate of 5.5%.

As Ethiopia navigates the complexities of its economic challenges, bondholders remain open to constructive engagement, recognizing the intricate web of negotiations in the journey to stave off default.