UPDATE: Ethiopia May Engage Private Creditors After Debt Review

Ethiopia is looking to offset the impact of the pandemic on its economy. (Getty Images)

Bloomberg

Ethiopia may approach private creditors for debt talks after it reviews liabilities with official lenders amid security risks that are adding to investors’ worries.

The nation’s Eurobonds plunged the most on record last week after State Minister of Finance Eyob Tekalign said the government will seek to restructure its external debt under a Group of 20 debt-suspension program. With no details on how the decision would affect holders of Ethiopia’s $1 billion of 2024 Eurobonds, many investors responded by selling the securities.

Only after talks involving official creditors, which the International Monetary Fund is assisting with, will the government be able to inform other creditors on the “need for broader debt treatment discussions,” the finance ministry said in a press statement on Monday.

Yields on Ethiopia’s $1 billion of 2024 Eurobonds climbed 26 basis points to 8.85% by 1:50 p.m. in London after jumping 207 points on Friday to the highest since May. The premium investors demand to hold the nation’s dollar bonds rather than U.S. Treasuries widened 31 basis points to 807, compared with the 538 average for African sovereign issuers, according to JPMorgan Chase & Co. indexes.

“In theory, a common framework should speed up the debt restructuring process, but it remains to be tested,” Morgan Stanley & Co. analysts Jaiparan Khurana and Simon Waever said in a note. “Questions around enforceability of the MoU terms to the private sector still persist, especially considering that the private sector is not a signatory.”

Ethiopia is the second African country after Chad to announce plans to review debt under the G-20 common framework, which aims to include China and private lenders into a global debt-relief push.

Ethiopia, like other African nations, is looking to offset the impact of the coronavirus pandemic on its economy. Ethiopia’s position is, however, exacerbated by fighting in the northern Tigray region and a border dispute with Sudan that’s threating to further destabilize the region.

“Possible implementation of the debt treatment under the Common Framework will address the debt vulnerabilities of the country, while preserving long-term access to international financial markets,” the finance ministry said in the statement. That will help in “unlocking more growth potential,” it said.

As with earlier bilateral debt relief, including via the Paris Club, Eurobond holders can choose not to participate in the program, according to the Morgan Stanley analysts. “The key issue would be how insistent bilateral creditors would be on the private sector participating,” they said.

Related:

Ethiopia to Seek Debt Relief Under G20 Debt Framework – Ministry


Under the new G20 framework, debtor countries are expected to seek an IMF programme to steer their economies back to a firmer ground and negotiate a debt reduction from both public and private creditors.(Getty Images)

Reuters

Updated: January 30th, 2021

Exclusive: Ethiopia to seek debt relief under G20 debt framework – ministry

Ethiopia plans to seek a restructuring of its sovereign debt under a new G20 common framework and is looking at all the available options, the country’s finance ministry told Reuters on Friday.

G20 countries agreed in November for the first time to a common approach for restructuring government debt to help ease the financial strain of some developing countries pushed towards the risk of default by costs of the coronavirus crisis.

Chad became on Wednesday the first country to officially request a debt restructuring under the new framework and a French finance ministry told Reuters on Thursday that Zambia and Ethiopia were most likely to follow suit.

Asked if Ethiopia was looking to seek a debt restructuring under the G20 framework, Finance Ministry spokesman Semereta Sewasew said: “Yes, Ethiopia will look at all available debt treatment options under the G20 communique issued in November.”

Ethiopia’s government bond due for repayment in 2024 which it issued back in late 2014 saw its biggest ever daily fall. It plunged 8.4 cents on the dollar from roughly par to just under 92 cents.

Ethiopia is already benefiting from a suspension of interest payments to its official sector creditors through the end of June under an initiative between the G20 and the Paris Club of creditor nations.

Under the new G20 framework, debtor countries are expected to seek an IMF programme to steer their economies back to a firmer ground and negotiate a debt reduction from both public and private creditors.

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