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 Record ID#46183, 107064)

Project narrative

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. The original borrowing terms of the loan (captured via Record 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 (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 Record 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 the maturity of the loan from 15 years to 25 years (revised final maturity date: January 2045), and reduce the loan's interest rate from 6-month LIBOR plus a 3% margin to 6-month LIBOR plus a 2.1% margin. 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 final debt restructuring agreement was not signed until September 2, 2020 (as captured via Record ID#85163). Based upon a 5-year grace period extension and a 10-year maturity extension, the lender and the borrower agreed that principal payments would not commence until February 2025 and loan's final maturity date would be reset to January 2045. The loan's interest rate was also reduced from 6-month LIBOR plus a 3% margin to 6-month LIBOR plus a 2.1% margin. The revised borrowing 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. The September 2, 2020 agreement, which was ratified into Djiboutian law in June 2021, also reportedly sought to improve the performance and profitability of the railway in order to increase revenue generation. However, there are indications that the borrower had difficulty repaying the loan even after the September 2, 2020 debt restructuring agreement was finalized. According to the International Monetary Fund (IMF), the stock of the Government of Djibouti's external arrears -- including arrears to China, Belgium, Spain, Iran, Italy, Saudi Arabia, and UAE -- stood at $107 million in March 2020. Then, in May 2020, a Debt Sustainability Analysis (DSA) by the World Bank and the IMF concluded that Djibouti was at a high risk of debt distress. Then, in March 2022, the World Bank published a report (entitled ‘Djibouti Economic Monitor Winter 2021’), which noted that ‘[o]n the debt side, liquidity tensions are likely to arise due to the payment of deferred debt service linked to the DSSI, the maturing of the two loans on the water pipeline project connecting Djibouti to Ethiopia loan in 2022, and the Addis Ababa-Djibouti railway project in 2025.’ Then, on November 29, 2022, the South China Morning Post reported that the Government of Djibouti had suspended debt service payments to China Eximbank. Djibouti’s Ministry of Economy, Finance, and Industry responded to the South China Morning Post report by releasing a public statement on December 7, 2022. The statement by the Ministry of Economy, Finance, and Industry noted that the Government of Djibouti had honored 85% of its loan repayment obligations in 2022. It also acknowledged that, as part of the Debt Service Suspension Initiative (DSSI), China Eximbank agreed to suspend principal and interest payments due in 2020 and 2021 under multiple loan agreements, and that the Government of Djibouti’s debt service obligations tripled with the expiration of DSSI. Then, in 2023, Djibouti’s Ministry of Economy, Finance, and Industry published a report, which identified the Government of Djibouti’s total arrears to China as being equivalent to DJF 24,104,000,000 ($135,285,797) as of December 31, 2022. The Government of Djibouti’s total arrears to China increased to DJF 28,867,000,00 by June 30, 2023. Then, in October 2023, China Eximbank and Djibouti's Ministry of Finance reached a preliminary debt service moratorium agreement (captured via Record ID#107064). The agreement suspended debt service payments over a 4-year period (2024-2027) under the $491,793,000 buyer's credit loan agreement for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project.