China Eximbank restructures 2013 buyer’s credit loan for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project (Linked to Project ID#46183)

In 2013, China Eximbank and Djibouti's Ministry of Finance signed a $491,793,000 buyer's credit loan agreement for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project. This borrowing terms of the loan (captured via Project ID#46183) were as follows: an interest rate of 6-month LIBOR plus a 3% margin, a 15-year maturity, and a 5-year grace period. The borrower also purchased buyer’s credit insurance from China Export and Credit Insurance Corporation, which is widely known as Sinosure. The proceeds of the loan were to be used by the borrower to partially finance a $550 million commercial (EPC) contract between the Government of Djibouti and China Rail Engineering Corporation (CREC) and China Civil Engineering Construction Corporation (CCECC), which was signed on January 30, 2012. The Government of Djibouti covered the remaining $58 million of the commercial contract cost. The purpose of the project was to construct a 100 km segment from Ali Sabieh to Nagad of the 756 km Addis Ababa–Djibouti Railway from Addis Ababa, the capital of Ethiopia, to Doraleh port in Djibouti. CREC and CCECC were the contractors responsible for project implementation. Construction began on December 31, 2014 and the railway was opened for use on January 1, 2018. It remains to be seen if the Djibouti-Addis Ababa Railway will find a path to commercial viability. Sinosure reportedly had to step in and write off approximately $1 billion in losses due to the poor commercial performance of the railway. On December 31, 2017, the Government of Djibouti formally requested a restructuring of its loan with China Eximbank for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project. According to an email correspondence between the Executive Director of AidData and an IMF Mission Chief to Djibouti, in 2019, the Djiboutian authorities conducted discussions with China Eximbank to restructure a 2013 loan for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project (captured via Project ID#46183). The Djiboutian authorities reported to the IMF that a memorandum of understanding (MOU) had been signed in 2019 to extend the grace period from 5 years to 10 years, extend maturity of the loan from 15 years to 25 years, and to reduce the interest rate from 3.409% (0.409% [2013 avg. 6-month LIBOR] + 3% [300 basis points]) to 2.509% (0.409% [2013 avg. 6-month LIBOR] + 2.1% [210 basis points]). The Djiboutian authorities also indicated that arrears on interest payments on this loan that had been accumulated during the restructuring discussion (worth 1.2 percent of the country’s GDP) had been restructured—and that they were integrated to the principal and expected to be repaid over the extended amortization period. The new terms of the loan reportedly reduced the present value of the country’s debt-to-GDP ratio by 4 percentage points and smoothed total debt service. However, the final loan restructuring agreement (captured via Project ID#85163) was not signed until September 2, 2020. It not only codified the terms and conditions that were first specified in the 2019 MOU, but also sought to improve the performance and profitability of the railway in order to increase revenue generation. The restructuring agreement was ratified into Djiboutian law in February 2021.

Additional details

1. On July 15, 2019, Ilyas Moussa Dawaleh, Minister of Economy and Finance of Djibouti, tweeted that a restructuring of the China Eximbank loan for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project would soon be finalized after ‘a few small details’ were settled. He then met with China Eximbank in Beijing to iron out these details on August 7, 2019. A picture of the meeting shows three Djiboutian government representatives and 10 China Eximbank representatives.

Number of official sources

5

Number of total sources

9