Ethiopia and Bondholders Reach Draft Agreement to Restructure $1 Billion

Ethiopia announced a draft agreement on the principal financial terms to restructure its US$1.0 billion 6.625% notes due 2024, reviving stalled talks with an ad hoc committee of bondholders that together hold more than 45% of the instrument. The Ministry of Finance published a statement via PR Newswire saying restricted discussions took place between December 23, 2025 and January 1, 2026 and produced an agreement in principle on the main financial elements of a restructured instrument.

The bond in question was issued in 2014 with ISIN US29766LAA44, carried a 6.625% coupon and reached its stated maturity in December 2024. Ethiopia defaulted on the notes in December 2023 after failing to make a roughly US$33 million coupon payment, making it one of the first African sovereign defaults since the recent wave that included Ghana. The ministry’s announcement frames the draft terms as focused on financial adjustments to replace the 2024 notes; it stresses that further steps are required to convert the draft into a binding transaction.

Two critical conditions stand between the draft and a completed restructuring. First, the signatories must reach agreement on non-financial terms for the new instruments, matters that typically cover covenants, event-of-default language, governing law and other contractual protections that influence creditor and sovereign incentives. Second, the ministry said the transaction remains subject to confirmations from the International Monetary Fund and the Office of the Comptroller of the Currency as referenced in its statement. Only after those elements are resolved can the restructuring be closed.

For markets and policymakers, the development is significant but incomplete. A restructuring that preserves creditor recovery while restoring Ethiopia’s medium-term debt sustainability would reduce near-term financing uncertainty and could help unlock concessional financing and donor support. Conversely, a breakdown over non-financial terms or a failure to secure IMF alignment would risk renewed litigation by holdout creditors and could prolong Ethiopia’s isolation from international capital markets.

Negotiations have a fraught recent history. Talks with private creditors collapsed in 2025 and bondholders explored legal avenues in the U.K., highlighting the leverage that holdouts can bring in cross-border sovereign debt disputes. The new draft marks a tactical advance: an accord in principle on financial terms makes a settlement feasible, but it does not eliminate the legal and political frictions that have dogged the process.

Beyond the single bond, Ethiopia’s broader external obligations remain central to economic policy. Under global restructuring frameworks, a substantial portion of bilateral claims has already been reworked, and public figures on the country’s remaining external debt vary depending on accounting assumptions and the treatment of official versus commercial claims. For Ethiopia, securing a final deal on this bond would be an important signal of progress toward normalizing relations with private creditors and restoring market access.

Officials said they will work collaboratively and in good faith with the ad hoc committee and advisors to finalize outstanding issues. Market participants will be watching for rapid movement on non-financial terms, official confirmations and any court filings that could complicate or accelerate a settlement.