(Bloomberg) — A group of Ethiopia’s bondholders formally began a process to sue the government over a defaulted $1 billion debt, according to people familiar with the matter.
Members of the Ethiopia Ad Hoc Bondholder Committee last week sent a pre-action letter to the government notifying them of their intent to file a claim in the English courts, said the people, who asked not to be identified as they’re not authorized to publicly announce the move. The authorities have 14 days to acknowledge the letter, the people said, without specifying the timeline.
Ethiopian officials didn’t respond to requests for comment.
It’s the first time a country is being sued under the Common Framework — a set of debt restructuring guidelines established by the Group of 20 during the pandemic in 2020. The action threatens to derail Ethiopia’s efforts to restructure at least $13 billion of external loans.
Under the Common Framework, borrowers must treat all creditors comparably. A court judgment would jeopardize that if it ordered Ethiopia to repay bondholders in full, with official bilateral and other commercial creditors having agreed to take losses.
At the center of the dispute with Ethiopia’s official creditor committee — known as the OCC, which China and France co-chair — is a deal sweetener the authorities agreed to with the bondholders known as a value-recovery instrument.
Under that proposal, Ethiopia would pay investors more if the economy outperformed International Monetary Fund projections. If it underperformed, bondholders would get smaller payouts.
The official creditor committee hasn’t agreed to any such instruments in its restructuring agreement with Ethiopia, and in a January letter to the government warned that VRIs “can significantly add complexity to the assessment of comparability of treatment.”
Ethiopia defaulted on its only eurobond in December 2023 by failing to make an interest payment. It’s one of four countries — along with Chad, Zambia and Ghana — that requested debt treatment under the Common Framework.
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–With assistance from Jorgelina do Rosario and Fasika Tadesse.
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