Ethiopia Introduces “New Money Warrant” to Break Eurobond Restructuring Deadlock

The Ministry of Finance (MoF) has officially announced that it has reached an Agreement in Principle (AIP) with an Ad Hoc Committee of creditors regarding the restructuring of its $1 billion 2024 Eurobond debt.

It was indicated that this ad hoc committee represents institutional investors who collectively control approximately 45 percent of the existing 2024 bond.

This breakthrough comes within weeks of a period when negotiations had temporarily collapsed on May 27, and tensions had escalated significantly after creditors previously rejected a proposal put forward by the government. Following that breakdown of talks, the Ad Hoc Committee of investors issued a statement on June 1 explicitly announcing that some of its members were planning to file formal legal lawsuits in UK courts to enforce their rights.

This threat of legal action surfaced after Ethiopia’s Official Creditor Committee (OCC) rejected a previously reached January agreement; the committee rejected the deal on the grounds that it did not meet the “Comparability of Treatment” principle required under the G20 Common Framework, and because it forced the mandatory cancellation of the previously agreed Variable Recovery Instrument (VRI).

To successfully avert this looming legal standoff and break the deadlock in negotiations, the parties returned to the bargaining table to design a new financial solution. This focused on a new structure called a “New Money Warrant,” offered to existing bondholders alongside the proposed New Bond, to bridge the remaining financial gap in the commercial process. This warrant is a separate, tradable security that grants holders the exclusive right to subscribe to a new international bond—the “Future Eurobond”—to be issued by Ethiopia down the line based on pre-agreed commercial terms.

According to the agreed parameters, the Future Eurobond will have an issuance amount of up to $1 billion, based on a strict 1-for-1 allocation per existing investor holdings.

The issue price will be at par, with a 7-year tenor and a 6-year average life payable in 3 equal amortizing payments between years 5 and 7. The interest rate will carry a spread of 450 basis points (bps) over the 6-year U.S.

Treasuries at the time of issuance. Furthermore, the window to exercise the warrant will be fixed within a one-year period commencing July 1, 2028. Ethiopia will retain the option to redeem the warrants instead of issuing the Future Eurobond, subject to a cap not exceeding 9% of the total nominal amount redeemed (a maximum of $90 million assuming a full $1 billion nominal amount is redeemed).
The core restructuring terms of the primary New Bond include a 12 percent haircut on the principal debt, bringing the bond amount to $880 million. The amortization schedule spans from July 2026 to July 2029, with the final maturity date set for July 15, 2029. The New Bond will carry an annual interest rate of 6.15%, payable semi-annually.

Three consecutive missed coupon payments from December 2023 to December 2024, totaling $99.375 million in Past Due Interest (PDI), will be paid in full at settlement, along with a 0.5 percent consent fee.

The Ministry of Finance explained that the International Monetary Fund (IMF) has reviewed the terms of this “New Money Warrant” and confirmed that it is consistent with Ethiopia’s debt sustainability targets. Additionally, the Co-Chairs of the Official Creditor Committee (OCC) have provided their preliminary non-objection, subject to formal approval by the wider OCC.