Ethiopia Strikes Deal with Bondholders to Restructure $1bn Bond

Ethiopia has reached a preliminary agreement with key bondholders to restructure its defaulted $1 billion international bond as the country strives towards resolving its debt crisis that has lingered for years.

The agreement which was announced by the country’s finance ministry on Monday, is a test of the G20 Common Framework, a debt restructuring initiative introduced during the COVID 19 pandemic to facilitate sovereign debt workouts involving official and private creditors.

Under the proposed terms, Ethiopia will issue a new $880 million bond to replace the defaulted debt. The new instrument will be repaid in instalments through 2029 and will carry an interest rate of 6.15 per cent, in line with an earlier understanding reached with bondholders.

The East African nation also agreed to settle $99.4 million in missed coupon payments and pay a consent fee as part of the restructuring package.

In addition, the deal introduces a “New Money Warrant” that gives bondholders the option to invest in a future Ethiopian bond issuance of up to $1 billion at a market linked interest rate. Ethiopia retains the option of settling the warrant in cash, with payments capped at $90 million.

Ethiopia’s finance ministry disclosed that the International Monetary Fund has endorsed the warrant structure, saying it aligns with the country’s debt sustainability targets.

The ministry further stated that China and France, the co chairs of Ethiopia’s Official Creditor Committee, had raised no objections to the arrangement, although the agreement still requires approval from the wider committee.

Following the announcement, Ethiopia’s international bonds rose by 2.9 cents to 108.423 cents on the dollar, their highest level since January, reflecting growing investor confidence in the restructuring process.

The latest agreement concludes a prolonged and difficult negotiation process that began in January 2021 when Ethiopia sought debt relief under the G20 Common Framework. The country later defaulted on its international bond in December 2023 before reaching an agreement in principle with its Official Creditor Committee in March 2025.

A restructuring agreement reached with bondholders in January 2026 had collapsed after objections from official creditors, while investors rejected a revised proposal in late May, with some threatening legal action.

Ethiopia’s debt restructuring process has highlighted persistent disagreements under the G20 Common Framework, particularly over the principle of comparability of treatment, which requires official and private creditors to absorb similar losses.

Bondholders had argued that Ethiopia’s improving economic outlook did not justify the scale of losses requested, while the finance ministry maintained that the framework should encourage earlier engagement between creditors, the IMF and private investors.

The Ad Hoc Committee representing approximately 45 per cent of holders of the outstanding bond participated in the negotiations. Ethiopia said it plans to complete the restructuring through a bond exchange offer in the coming months after outstanding non financial terms are finalised and the Official Creditor Committee grants its formal approval.