Ethiopia’s credit risk ratchets higher after Moody’s downgrade
Ethiopia’s sovereign-risk premium has hit a record high after last week’s downgrade deeper into junk by Moody’s Investors Service.
The extra yield investors demand to own Ethiopia’s dollar debt has widened to a spread of 4,089 basis points over Treasuries, according to JPMorgan Chase & Co. data. The spread had narrowed at the start of the year. Bonds trading with a spread of more than 1,000 basis points are viewed as distressed by credit markets.
Ethiopia’s foreign issuer rating was downgraded by Moody’s to Caa3 from Caa2 on Friday. The local issuer rating was affirmed at Caa2, while the outlook was moved to stable from negative. The country has $154 million in bond and loan payments due in the next year, based on data compiled by Bloomberg.
“The main driver behind the downgrade of Ethiopia’s FC rating is the increasingly high likelihood of default on FC-denominated private-sector debt because of strained external liquidity, for which the government has sought relief under the G20 Common Framework for debt treatment,” said Sam Singh-Jami, Africa Strategist at Rand Merchant Bank, in a note to clients.
Last week’s downgrade reflected Moody’s expectation that losses for private-sector creditors were likely to be in the range of 20%-35%, “which is lower than the historical average of losses for sovereigns of about 50%, because the government primarily seeks liquidity relief,” she said.
