[Cancelled] ZTE provides $800 million, China Eximbank-backed supplier's credit for Telecom Transformation and Expansion 6 Circles Project (Linked to Record ID#69387 and ID#86927)

Project narrative

On January 10, 2013, Huawei Technologies Co., Ltd. and Ethio Telecom -- an Ethiopian state-owned enterprise previously known as the Ethiopian Telecommunications Corporation -- signed an $800 million supplier credit agreement for the Telecom Transformation and Expansion 7 Circles Project (as captured via Record ID#69387). On the same day, Ethio Telecom signed a $800 million supplier's credit agreement with ZTE Corporation for the Telecom Transformation and Expansion 6 Circles Project. However, the loan commitment from ZTE Corporation was subsequently canceled (as captured via Record ID#30884) and subsequently replaced with a new $300 million loan from ZTE Corporation. On December 16, 2014, ZTE Corporation and the Government of Ethiopia signed a $300 million supplier's credit (loan) agreement with Ethio Telecom for the Ethio Telecom Expansion Project (as captured via Record ID#69385). ZTE Corporation and Huawei Technologies Co., Ltd. reportedly secured a $1.6 billion export seller’s credit from China Eximbank and then used the proceeds of the export seller’s credit to on-lend to Ethio Telecom. The supplier's credits (loans) from ZTE Corporation and Huawei Technologies Co., Ltd. originally carried the following borrowing terms: a 13 year maturity, a 3 year grace period, and an interest rate of 6 month LIBOR plus a 1.5% margin. The borrower was expected to use the loan proceeds to finance commercial contrats that signed with ZTE Corporation and Huawei Technologies Co., Ltd. in July 2013. The Government of Ethiopia did not issue a sovereign guarantee in support of the loan issued by Huawei Technologies Co., Ltd. or the loan issued by ZTE Corporation. Ethio Telecom and Huawei Technologies Co., Ltd. subsequently rescheduled the 2013 loan through a 4-year maturity extension. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to September 30, 2018 and March 31, 2030, respectively. Its first and last scheduled interest payment dates were reset to September 30, 2017 and December 31, 2029, respectively. Ethio Telecom and ZTE Corporation subsequently rescheduled the 2014 loan through a 3.25-year maturity extension. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to September 30, 2018 and March 31, 2030, respectively. Its first and last scheduled interest payment dates were reset to September 30, 2017 and March 30, 2028, respectively. The purpose of the Telecom Transformation and Expansion Circles Project was to (a) provide fourth generation (4G) technology, a broadband technology allowing browsing speed of 100mb per second in Addis Ababa; and (b) enable third generation (3G) services across the country. Ethio Telecom divided the country into 12 infrastructural zones (‘circles’), and made one vendor (Huawei Technologies Co., Ltd.) responsible for 7 circles and another vendor (ZTE Corporation) responsible for 6 circles. Therefore, the project consisted of two sub-projects: the Telecom Transformation and Expansion 7 Circles Project (implemented by Huawei Technologies Co., Ltd.) and the the Telecom Transformation and Expansion 6 Circles Project (partially implemented by ZTE Corporation). The sub-project overseen by Huawei Technologies Co., Ltd. entered implementation without any known contractual disputes with the project owner (Ethio Telecom). However, the sub-project overseen by ZTE Corporation was plagued by a contractual dispute with the project owner. According to Deputy Prime Minister Debretsion Gebremichael, ZTE Corporation declined to work on the swapping of an old network in the capital city of Addis Ababa and asked for an additional $150 million for the service. Mekuria Haile, Ethiopia’s Minister of Urban Development and Housing Construction (and Chair of the Ethio Telecom Board) eventually terminated Ethio Telecom’s agreement with ZTE Corporation in April 2014. Then, Ethio Telecom approached Nokia and Ericsson with an offer to work on the project together and take responsibility for three circles each. This resulted in a deal with Ericsson. According to Debretsion Gebremichael, “Nokia did not respond to our offer, so we continued negotiations with Ericsson.’’ Ericsson proposed a $550 million deal for four circles (the south, south west, south east and south south circles) and a credit agreement with a 10 year maturity and a 7.5% interest rate. The interest rate and the maturity were adjusted after negotiation between the two parties, but they both remained higher than the interest rate and the maturity in the supplier credit agreement with ZTE Corporation. After ZTE Corporation learned that the Government of Ethiopia was negotiating with Ericsson, it requested to work on the project again by agreeing to include the network swapping in the initial project cost. Hours before Andulem Admassie, chief executive officer (CEO) of Ethio telecom, and Rafiah Ibrahim, president of Ericsson for the Middle East and North East Africa region, finalized a deal for the four circles sub-project, ZTE Corporation and Ethio Telecom signed a new agreement that gave it responsible for the two remaining circles (east and middle east circles). The Telecom Transformation and Expansion 7 Circles Project was ultimately completed and put into operation in 2017.