Ethiopia’s official creditors approved the restructuring of its one billion dollar Eurobond on Friday 21 August, and used the same statement to object to a clause inside it. The committee, co-chaired by France and China, said the proposal complies with the principle of comparability of treatment and with the memorandum agreed with Addis Ababa. It then flagged the New Money Warrant, an instrument giving bondholders the right to buy up to one billion dollars of a future Ethiopian bond at a market-linked rate, which the government may settle in cash subject to a ninety million dollar cap. The committee’s concern is that the warrant could leave private creditors better treated than bilateral ones.
The headline terms look like a concession. Bondholders accept a 12 per cent reduction of principal, producing a new bond of 880 million dollars maturing on 15 July 2029. That is a real loss taken on a real instrument. It is also the part of the deal that comparability of treatment knows how to measure. Official creditors compare haircuts, coupons and maturities, because those are the quantities the framework was built to compare, and on those quantities Ethiopia’s private creditors have given ground.
The warrant is not one of those quantities. It is an option, and options are priced on volatility and time rather than on the face value of anything. A bondholder who has just written down 12 per cent of principal and simultaneously acquired the right to lend again, at market rates, into a sovereign that has been walked back from default by an internationally supervised process, has not obviously lost. The concession is taken where the framework measures. The recovery sits where it does not.
The concession is taken where the framework measures. The recovery sits where it does not.
That is the substance of what France and China are jointly complaining about, and the fact that they are complaining jointly is itself the story. The G20 Common Framework was designed to solve a coordination problem, bringing Chinese lending, Western bilateral lending and private bondholders into a single process so that no class of creditor could free-ride on another’s forbearance. Ethiopia is one of its principal live tests. On this occasion the coordination worked. Paris and Beijing, who agree on very little regarding African debt, examined the same document and reached the same objection.
What they could not do was stop it. The committee approved the deal and registered the concern, which is the appropriate response if the alternative is to reopen a restructuring that has already collapsed twice. A deal struck in January this year fell apart when official creditors objected. Bondholders rejected a revised offer in late May. The agreement in principle reached in June is the third attempt at an instrument that matured back in 2024. Two years of default have a cost of their own, measured in market access, investment decisions deferred and the price of everything Ethiopia borrows next.
So the framework arrives at a familiar equilibrium. It can enforce comparability on the terms it enumerates, and it cannot enforce it on the terms it does not, because the only sanction available is to prolong a default that harms the debtor far more than the creditor. A bondholder negotiating inside such a process knows both of those things. The rational move is to concede visibly on principal and to place value in a structure the comparability test does not reach, which is precisely the shape of this agreement.
The consequence runs past Addis Ababa. Every finance ministry on the continent weighing whether to enter a Common Framework process is watching what the process actually delivers, and this outcome tells them two things. It works, in the sense that Ethiopia is emerging from default with a smaller obligation and a defined maturity. It is also slow, contested, and vulnerable to being partly recovered through clauses the official side can criticise but not remove. A government that reads that record and concludes it should delay asking for relief has not misread it.
Ethiopia has done the harder thing and taken the deal. The remaining question is what the warrant is worth if it is exercised, and nobody will be able to answer it until the next Ethiopian bond exists. That is the point of an option. The ninety million dollar cash cap limits the immediate fiscal exposure and does not settle the substance, because the value of a right to lend again is realised in the lending, not in the settlement. Comparability of treatment was tested in this restructuring and held on the numbers. It will be tested again on the terms of a bond that has not been issued.
