Ethiopia has received formal notice from a group of international bondholders warning of potential legal action in English courts after a debt restructuring deal collapsed, sources said Wednesday.
The Steering Committee representing holders of Ethiopia’s US$1 billion international bond issued a “pre-action letter” ahead of the International Monetary Fund and World Bank spring meetings in Washington, according to two people familiar with the matter.
Such a letter is typically a required step under English law before initiating court proceedings, signalling that creditors could move to litigation as early as May if no resolution is reached.
The warning follows months of escalating tensions between Ethiopia and its external creditors after a proposed restructuring agreement fell apart earlier this year.
Bondholders had previously cautioned that they were prepared to pursue legal enforcement to recover unpaid principal and interest after negotiations stalled.
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The dispute stems from disagreements over the terms of a draft restructuring deal that was reportedly agreed in principle earlier in January but later rejected by official creditor groups over concerns it did not meet “comparability of treatment” requirements.
That principle generally requires that private creditors receive treatment comparable to that offered to official bilateral lenders in sovereign debt restructurings.
The breakdown has left Ethiopia’s sole international bond in limbo, complicating the country’s broader efforts to manage external debt pressures under its ongoing economic reform and restructuring programme.
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Representatives of bondholders and Ethiopian officials reportedly held meetings last week on the sidelines of the IMF and World Bank gatherings in Washington, but no breakthrough was reached, one source said.
Ethiopia’s government has not publicly commented on the latest notice and did not immediately respond to requests for comment.
The developments highlight growing strains in global sovereign debt restructuring processes, particularly for low-income countries navigating complex negotiations involving both private investors and official creditors.
Ethiopia, which has been undergoing economic reforms and seeking to stabilise its external finances, remains under pressure to reach a comprehensive agreement that satisfies multiple creditor groups.
Without a resolution, analysts say the threat of litigation could further complicate its access to international capital markets and delay broader debt sustainability efforts.
