Key Takeaways
- Ethiopia has reached a new preliminary deal with bondholders to restructure its defaulted $1 billion Eurobond
- The agreement includes a new instrument giving investors the option to buy into a future Ethiopian bond
Ethiopia has struck a new preliminary agreement with key bondholders to restructure its defaulted $1 billion international bond, bringing the Horn of Africa country closer to resolving a debt crisis that has stretched on for years.
Ethiopia’s finance ministry said in a statement on Monday that it had held a new round of talks with bondholders between June 5 and 28, yielding an “agreement in principle.” The agreement caps a lengthy restructuring process marked by back and forth with official creditors over the contours of a deal with bondholders.
Sovereign debt restructurings that drag on without resolution raise borrowing costs and dent investor confidence in a country’s economic management. Ethiopia said it plans to implement the deal through an exchange offer in the coming months, once remaining non-financial terms are agreed. Ethiopia’s bonds jumped more than 2 cents to bid at 107.625 cents on the dollar, their highest level since January, according to Tradeweb data.
The shape of the deal
The proposal calls for Ethiopia to issue an $880 million bond, repaid in instalments with a final payment due in 2029 at an interest rate of 6.15%, as previously agreed with bondholders.
Ethiopia would also pay in full the three coupon payments it missed, totalling $99.375 million, along with a consent fee. The agreement also includes a novel instrument at the centre of recent negotiations.
The deal includes a New Money Warrant, which gives bondholders the option to buy into a future Ethiopian bond of up to $1 billion at a market-linked interest rate, though Ethiopia can also choose to pay them cash instead, up to a maximum of $90 million.
The terms of the warrant have been shared with the IMF and the co-chairs of Ethiopia’s Official Creditor Committee, both of whom have signed off — the IMF confirming the warrant is consistent with its debt sustainability targets, and the co-chairs providing their non-objection.
A long road to this point
Ethiopia defaulted on the bond in December 2023 after missing a $33 million coupon payment. The country had opted to restructure its debt under the G20’s Common Framework, a mechanism designed to coordinate relief across bilateral, multilateral, and commercial creditors.
A deal struck in January 2026 collapsed when official creditors objected on the grounds that it violated the Comparability of Treatment principle, which requires bondholders to receive terms broadly in line with what bilateral creditors received. Bondholders subsequently considered legal action, with the Ad Hoc Committee announcing in June that some members intended to press forward with claims in the English courts to protect and enforce their rights.
Fresh talks between June 5 and 28 produced the current agreement, averting that litigation path for now.
