Fitch cuts Ethiopia’s Eurobond to ‘default’ after missed payment

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The offices of Fitch Ratings building appears empty in Canary Wharf, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 27, 2020. REUTERS/Dylan Martinez/File Photo Acquire Licensing Rights
JOHANNESBURG, Dec 27 (Reuters) – Fitch on Wednesday downgraded the rating on Ethiopia’s only international government bond to “default” from “near default” after the east African country failed to make a $33 million coupon payment.

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Ethiopia became Africa’s third default in as many years on Tuesday after it failed to make the payment on the $1 billion Eurobond.

While the payment was due on Dec. 11, a 14-day grace period clause meant it technically had until Tuesday to provide the money.

The agency also lowered Ethiopia’s long-term foreign currency rating to “RD” or restricted default, from “C”. It does not assign outlooks to sovereigns rated “CCC+” or below.

Ethiopia requested debt relief under the Group of 20’s Common Framework in early 2021. But the effects of the COVID-19 pandemic and a two-year civil war meant progress was initially delayed.

Ethiopian officials told bondholders in a call on Dec. 15 that the coupon was affordable, but that it was not paying in order to treat all its creditors equally.

“Statements by the Ministry of Finance suggest that the non-payment reflects the effort to provide equal treatment to private creditors following agreements with official creditors to suspend debt service,” Fitch said in a statement.

Africa’s second-most populous country’s official sector government creditors have agreed to a debt-service suspension. But parallel talks with pension funds and other private creditors broke down, the government said on Dec. 8.

Fitch said it affirmed Ethiopia’s long-term local currency at ‘CCC-‘ as the government has continued servicing that debt, with no indication that it planned to include domestic debt in any restructuring.

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