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ETB Bond Hits Record Low after US Move on Duty Free Access

LONDON, Nov 3 (Reuters) - Ethiopia’s sovereign dollar bond dropped to a record low on Wednesday after U.S. President Joe Biden said he planned to cut off the country from duty free access to the United States and conflict on the ground escalated further.

The 2024 bond fell by 2.3 cents in the dollar to 78.063 cents, Tradeweb data showed.

Biden told Congress he intends to remove Ethiopia from the U.S. African Growth and Opportunity Act due to human rights violations, the strongest response yet to the conflict in the region of Tigray that has caused mass displacement and famine.

A long-awaited report published by the United Nations and Ethiopia on Wednesday said all sides committed violations that may amount to war crimes, including killing civilians, gang-rapes and making arrests on the basis of ethnicity.

Prime Minister Abiy Ahmed said he accepted the report despite some “serious reservations”. The Tigray People’s Liberation Front spokesperson could not be reached. He has previously denied that Tigrayan forces committed abuses but said some “vigilante” Tigrayan groups may have.

The U.S. move, which would come into effect on Jan. 1, threatens Ethiopia's textile industry, which supplies global fashion brands, and the country's nascent hopes of becoming a light manufacturing hub.

The drop in bond prices extends falls suffered on Tuesday when Ethiopia declared a six-month state of emergency after forces from the Tigray said they were gaining territory and considering marching on the capital Addis Ababa.

Ethiopia's $1 billion Eurobond, its only international issue, has declined more than 20 cents since start of the conflict a year ago.

Ethiopia, together with Chad and Zambia, is one of three nations who applied for a debt restructuring under the G20 Common Framework, designed to provide debt relief to poorer countries. But progress has been slow.

“Everything is coming together in the wrong way in the last couple of months,” said Simon Quijano-Evans at Gemcorp Capital. “Negative news, a lack of any insight into what is happening coupled with the failure of the common framework to include private creditors from the beginning makes it that much more difficult for bondholders to hold the debt.”

JPMorgan’s Gbolahan S Taiwo said recent downgrades by ratings agencies had contributed to the decline in bond prices.

However, given the country’s moderate debt-to-GDP ratio, Ethiopia’s debt sustainability challenges originated from elevated short-term external financing obligations, rather than overall solvency concerns, Taiwo added.

“We expect the eventual restructuring process for bonds would involve a reprofiling with maturity extensions and possibly some coupon reductions, but no principal haircuts,” he wrote in a note to clients.

Reporting by Karin Strohecker; Additional reporting by Marc Jones; Editing by Huw Jones and Alison Williams

Source: Reuters


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