Ethiopia reached an agreement to restructure its defaulted $1bn international bond, with creditors accepting a reduction to $880mn in face value. The deal emerged after investors threatened litigation in English courts over flaws in the G20's Common Framework for sovereign debt restructuring. Ethiopia's finance ministry confirmed the agreement on Monday, ending years of stalled negotiations with official creditors.

The restructuring gained crucial backing from China, Ethiopia's largest official creditor, and received IMF approval. Ethiopia stopped interest payments in 2023, a year before the bond's full repayment date. The country previously secured over $8bn in debt relief from official creditors but faced opposition from bondholder committees representing nearly half of the outstanding debt.

Under the terms, bondholders will receive approximately $99mn in missed interest payments plus a $5mn fee, with a new interest rate slightly above 6 per cent. Creditors also obtain warrants to purchase future seven-year bonds worth up to $1bn, priced at 4.5 percentage points above six-year US Treasuries. Failure to issue these bonds would require Ethiopia to pay up to $90mn to warrant holders.

The deal averted what would have been the first court case testing the G20 framework's effectiveness. Tim Jones of Debt Justice criticized the outcome, arguing bondholders extracted additional payments through legal threats. Ethiopia's economy has grown 6-9 per cent annually since Abiy Ahmed became prime minister in 2018, despite the devastating Tigray conflict and rising inflation above 11 per cent.