Ethiopia Bondholders Start Process to Sue Government Over Defaulted Debt

(Bloomberg) — A group of Ethiopian bondholders has formally launched a process to sue the government over $1 billion in defaulted debt, according to people familiar with the matter.

Members of the Ethiopian Ad Hoc Bondholders Committee sent a pre-suit letter to the government last week informing it of their intention to sue in British courts, the people said, asking not to be named because they were not authorized to publicly announce the move. Officials have 14 days to approve the letter, the official said, without specifying the timeline.

Ethiopian officials did not respond to requests for comment.

It is the first time a country has been sued under the Common Framework, a set of debt restructuring guidelines created by the Group of 20 during the pandemic in 2020. The action threatens to derail Ethiopia’s efforts to restructure at least $13 billion in foreign loans.

Under the Common Framework, debtors are required to treat all creditors similarly. A court ruling would jeopardize the situation if Ethiopia decides to repay bondholders in full and official bilateral and other commercial creditors agree to absorb losses.

At the center of Ethiopia’s dispute with the official creditor committee, known as the OCC, co-chaired by China and France, is an agreement known as the value recovery instrument to sweeten the deal officials have reached with bondholders.

Under this proposal, Ethiopia would pay investors more if the economy exceeds International Monetary Fund forecasts. If it underperformed, bondholders would receive smaller payments.

The official creditor committee did not accept any such instruments in its restructuring deal with Ethiopia and warned in a letter to the government in January that VRIs could “add significant complexity to the assessment of comparability of treatment.”

Ethiopia defaulted on its single eurobond by not making interest payments in December 2023. It is one of four countries (along with Chad, Zambia and Ghana) to request debt treatment under the Common Framework.

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–With help from Jorgelina do Rosario and Fasika Tadesse.

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