Mereja.Forum

[sarcasm]

Fitch Downgrades Ethiopia to 'CCC'
Tue 09 Feb, 2021 - 09:15 ET

Fitch Ratings - Hong Kong - 09 Feb 2021: Fitch Ratings has downgraded Ethiopia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'B'.

Fitch typically does not assign Outlooks or apply modifiers to sovereigns with a rating of 'CCC' or below.



KEY RATING DRIVERS
The downgrade reflects the government's announcement that it is looking to make use of the G20 "Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI)" (G20 CF), which although still an untested mechanism, explicitly raises the risk of a default event.

The G20 CF, agreed in November 2020 by the G20 and Paris Club, goes beyond the DSSI that took effect in May 2020, in that it requires countries to seek debt treatment by private creditors and that this should be comparable with the debt treatment provided by official bilateral creditors. This could mean that Ethiopia's one outstanding Eurobond and other commercial debt would need to be restructured, potentially representing a distressed debt exchange under Fitch's sovereign rating criteria. There remains uncertainty over how the G20 CF will be implemented in practice, including the requirement for private sector participation and comparable treatment. Fitch's sovereign ratings apply to borrowing from the private sector, so official bilateral debt relief does not constitute a default, although it can point to increasing credit stress.

Within the context of Paris Club agreements, comparable treatment requirements are not always enforced and the scope of debt included can vary. The Paris Club states that the requirement for comparable treatment by other creditors can be waived in some circumstances, including when the debt represents only a small proportion of the country's debt burden.

The focus of Ethiopia's engagement with the G20 CF will be on official bilateral debt, as reprofiling of this will have the biggest impact on overall debt sustainability. Nonetheless, the terms of the framework clearly create risk that private sector creditors will also be negatively affected. The G20 statement on the G20 CF indicates that debt treatments will not typically involve debt write-offs or cancellation unless deemed necessary. The focus will instead be on some combination of lowering coupons and lengthening grace periods and maturities. The extent of debt treatment required will be based upon the outcome of the IMF's Debt Sustainability Analysis for Ethiopia, which is currently being updated. However, any material change of terms for private creditors, including the lowering of coupons or the extension of maturities, would be consistent with the definition of default in Fitch's criteria.

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[Dawi]

sarco,

It was due to heavy debt burden that wasn't being properly accounted for during TPLF. What did they do with the money?

None of the investments including the ill designed ones were/are evidence of gross capital misallocation/misappropriation.

The chickens are now beginning to come home to roost!

Abiy's government don't have a choice but go with (DSSI) to catch a breath therefore, "CCC" from "B".

Fitch Downgrades Ethiopia to 'CCC'
Tue 09 Feb, 2021 - 09:15 ET

Fitch Ratings - Hong Kong - 09 Feb 2021: Fitch Ratings has downgraded Ethiopia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'B'.

Fitch typically does not assign Outlooks or apply modifiers to sovereigns with a rating of 'CCC' or below.



KEY RATING DRIVERS
The downgrade reflects the government's announcement that it is looking to make use of the G20 "Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI)" (G20 CF), which although still an untested mechanism, explicitly raises the risk of a default event.

The G20 CF, agreed in November 2020 by the G20 and Paris Club, goes beyond the DSSI that took effect in May 2020, in that it requires countries to seek debt treatment by private creditors and that this should be comparable with the debt treatment provided by official bilateral creditors. This could mean that Ethiopia's one outstanding Eurobond and other commercial debt would need to be restructured, potentially representing a distressed debt exchange under Fitch's sovereign rating criteria. There remains uncertainty over how the G20 CF will be implemented in practice, including the requirement for private sector participation and comparable treatment. Fitch's sovereign ratings apply to borrowing from the private sector, so official bilateral debt relief does not constitute a default, although it can point to increasing credit stress.

Within the context of Paris Club agreements, comparable treatment requirements are not always enforced and the scope of debt included can vary. The Paris Club states that the requirement for comparable treatment by other creditors can be waived in some circumstances, including when the debt represents only a small proportion of the country's debt burden.

The focus of Ethiopia's engagement with the G20 CF will be on official bilateral debt, as reprofiling of this will have the biggest impact on overall debt sustainability. Nonetheless, the terms of the framework clearly create risk that private sector creditors will also be negatively affected. The G20 statement on the G20 CF indicates that debt treatments will not typically involve debt write-offs or cancellation unless deemed necessary. The focus will instead be on some combination of lowering coupons and lengthening grace periods and maturities. The extent of debt treatment required will be based upon the outcome of the IMF's Debt Sustainability Analysis for Ethiopia, which is currently being updated. However, any material change of terms for private creditors, including the lowering of coupons or the extension of maturities, would be consistent with the definition of default in Fitch's criteria.

Continue reading

[sarcasm]

sarco,

It was due to heavy debt burden that wasn't being properly accounted for during TPLF. What did they do with the money?

None of the investments including the ill designed ones were/are evidence of gross capital misallocation/misappropriation.

The chickens are now beginning to come home to roost!

Abiy's government don't have a choice but go with (DSSI) to catch a breath therefore, "CCC" from "B".

Let's suppose you inherit a factory from your uncle (lucky you ; ) ). On your first month you sack the old management and you employ a new management team and they take on the financial, production and sales management of the factory.

After 4 years, your bank manager, unhappy with your overdraft level, inspects your books and visits your plant. He tells you that your sales are nosediving and your cash balance is very poor that you are paying your suppliers very late. He reminds you that you have not been paying your bank loan interest payments regularly. He tells you that the way things are, you will not be able to repay your loan on maturity date. Then he tells you that they are downgrading your credit rating from B to CCC. He tells you, "the old management under your uncle managed the plant to have a rating of B. Under your watch, the company's bonds are graded at junk bond." Then you tell him that it was your uncle's fault. Could you imagine the look on his face?

[eden]

Dawi is saying there's a lag. When does Abiy start taking the blame Dawi?

[sarcasm]

From around 51:52

[Dawi]

sarco,

It was due to heavy debt burden that wasn't being properly accounted for during TPLF. What did they do with the money?

None of the investments including the ill designed ones were/are evidence of gross capital misallocation/misappropriation.

The chickens are now beginning to come home to roost!

Abiy's government don't have a choice but go with (DSSI) to catch a breath therefore, "CCC" from "B".

Let's suppose you inherit a factory from your uncle (lucky you ; ) ). On your first month you sack the old management and you employ a new management team and they take on the financial, production and sales management of the factory.

After 4 years, your bank manager, unhappy with your overdraft level, inspects your books and visits your plant. He tells you that your sales are nosediving and your cash balance is very poor that you are paying your suppliers very late. He reminds you that you have not been paying your bank loan interest payments regularly. He tells you that the way things are, you will not be able to repay your loan on maturity date. Then he tells you that they are downgrading your credit rating from B to CCC. He tells you, "the old management under your uncle managed the plant to have a rating of B. Under your watch, the company's bonds are graded at junk bond." Then you tell him that it was your uncle's fault. Could you imagine the look on his face?

Sar,

These "factories" my "uncle" left me were unfinished; 10 or so "Sugar factories", "Industrial Parks", GERD and a number of other uncomplete plants; unfortunately loans were taken on them and the money misappropriated. I need to find new loans to complete the unfinished plants.

METEC trying to do complex things it didn't know what the hell it was doing on GERD; can you imagine my "uncle" allowed METEC with no experience to undertake the most complex electromechanical installation work on the Grand Ethiopian Renaissance Dam (GERD)? How stupid can you be? Now, Abiy has to start from scratch by outsourcing it to a Chinese giant company; nice the project has reached 78%; it is still years behind.

Forget the Sugar factories! Abiy had to dump tons of sugar cane ready for production because the factories need a lot of doe to finish them fast enough to do some production and the borrowed money by enlarge was mismanaged.

Even the simple "Industrial parks" are not paying their loans because we don't have the agricultural inputs ready for them. I guess the geniuses in EPRDF didn't think about that when they built them?

Today all loans are due; non of the planned industries are finished therefore, not making any payments for the loans. The country is practically in a verge of bankruptcy.

So, am I lucky or cursed for inheriting such a mess? You tell me!

እኔ የሽመልስ "ውታፍ ነቃይ" እይደለሁም ፣ የተረኝነት ጉዳይ አሳሳቢ ነው። In other words, Ethio360 has a point!

Check the following on the industrial parks: