Ethiopia and its bondholders reached a landmark agreement on June 28 to restructure the country’s defaulted $1 billion Eurobond, clearing one of the final hurdles in Addis Ababa’s prolonged debt relief process.

 

The agreement has been welcomed by the International Monetary Fund (IMF) and official bilateral creditors, including China and France. It signals that Ethiopia’s debt restructuring is nearing completion and paves the way for the country’s gradual return to international capital markets.

Under the agreement, Ethiopia will exchange its existing bond for a new three-year $880 million bond carrying a 6.15 percent coupon and maturing on July 15, 2029.

The government will also pay in full three missed coupon payments totalling $99.37 million, together with a consent fee equivalent to 0.5 percent of the original nominal value of the 2024 notes ($1 billion) to participating bondholders on the settlement date.

Following three weeks of negotiations, the parties also agreed to introduce a New Money Warrant, giving existing bondholders the right to subscribe to up to $1 billion of future Ethiopian sovereign bonds at market interest rates.“The terms of the New Money Warrant have been shared with the IMF for review, which confirmed that it would be consistent with the IMF’s debt sustainability targets and parameters for Ethiopia, and with the Co-Chairs of the Official Creditor Committee, who provided their non-objection, subject to approval by the wider Official Creditor Committee,” Ethiopia’s Ministry of Finance said in a statement dated June 29.

The warrant will be issued alongside the new bond as a separate tradable security. It gives holders the right to subscribe to a future international bond on agreed commercial terms.

The proposed future Eurobond could raise up to $1 billion, be issued at par with a seven-year tenor and an average life of six years, with principal repaid in three equal instalments during years five, six and seven.

The parties also agreed that Ethiopia would reimburse the Ad Hoc Committee’s fees and expenses incurred during the restructuring process.

The Ad Hoc Committee represents US and European investors holding about 45 percent of the 2024 notes.

Debt breakthroughDebt restructuring has been a central pillar of Prime Minister Abiy Ahmed’s economic reform programme, backed by the IMF and the World Bank.

The successful conclusion of the restructuring is expected to restore Ethiopia’s access to international financing, including budget support.

Negotiations between the government and bondholders, represented by the Ad Hoc Committee, repeatedly stalled as official bilateral creditors argued that Ethiopia’s proposals did not ensure comparable treatment for all creditors.

Treatment disputeThe Official Creditor Committee (OCC), co-chaired by France and China, rejected preliminary restructuring terms agreed on January 2, 2026, arguing that they failed to comply with the G20 Common Framework’s Comparability of Treatment principle, which requires commercial creditors to provide debt relief broadly comparable to that offered by official lenders.

The January proposal also included a Value Recovery Instrument (VRI), which would have entitled bondholders to additional payments linked to Ethiopia’s export performance.

However, official creditors argued that the rapidly evolving macroeconomic environment was not “conducive” to the use of such an instrument.

The OCC said implementing the preliminary agreement would have resulted in an insufficient restructuring effort by bondholders, breaching the comparability of treatment principle.

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