Ethiopia floats “loss reinstatement” provision in bond rework -sources

By Rachel Savage and Jorgelina do Rosario

JOHANNESBURG (Reuters) – Ethiopia’s government told bondholders on Thursday it was hoping to negotiate a rework of its single international bond quickly and was set to include a form of “loss reinstatement” provision for investors, three sources attending the call told Reuters.

The global investor call was part of Ethiopia’s eleventh hour push to resuscitate an overhaul of its $1 billion Eurobond after disclosing on Dec. 8 that it failed to reach an agreement with a core group of bondholders.

Africa’s second most populous country is headed for default after it said last week it could not pay a $33 million coupon on its $1 billion eurobond due on Dec. 11, which has a 14-day grace period.

The proposal on Thursday was similar to the one sent recently to the bondholder group, three sources who attended the virtual presentation told Reuters.

However, it included a reference to a “loss reinstatement” provision to compensate bondholders if Ethiopia were to suffer another default that would affect bonds issued after the rework.

Bondholders in the original group, with a large enough stake to vote down measures, had sought such a provision in their latest proposal, the government said in statements last week. However, the provision outlined by the government was not offering exactly what bondholders had envisaged, two of the sources said.

Ethiopia’s economy is still reeling from high inflation, a hard-currency shortage and growing external debt repayments more than a year after the federal government and rebel forces from the northern Tigray region signed a truce to end a two-year civil war.

The Ethiopian officials in the presentation emphasised the need for bondholders to deliver enough debt relief to satisfy official creditors including China’s demands for “comparability of treatment”, an issue that scuppered Zambia’s debt relief negotiations.

The government argued that paying the bond coupon would have created issues with other creditors, the sources said, declining to be named due to the sensitivity of the issue.

Ethiopia requested debt relief under the G20’s Common Framework in early 2021, but progress was initially delayed by the war. It agreed a debt service suspension with its official creditors ahead of negotiating more debt relief with them.

Also on Thursday, credit rating agency Fitch downgraded Ethiopia to “C” and said it would lower the rating further to “RD” if the government did not make the coupon payment by the time the grace period expired.

(Reporting by Rachel Savage and Jorgelina do Rosario; Additional reporting by Karin Strohecker; Editing by Richard Chang)