A group of international investors has formally notified the Ethiopian government that it may pursue legal action in English courts as early as May following the collapse of a recent debt restructuring deal, according to two sources familiar with the matter.

According to CNBC Africa, the Steering Committee representing Ethiopia’s bondholders sent a pre action letter in the week before the International Monetary Fund and World Bank Spring Meetings in Washington. A pre action letter is a formal notice typically required before legal proceedings are initiated in English courts.

CNBC quoted a source which stated that representatives of both sides met last week in Washington on the sidelines of the meetings.

The dispute follows the breakdown of negotiations between Ethiopia and holders of its only international bond, valued at USD 1 billion. The restructuring proposal, which had been negotiated earlier in January, was later blocked by official creditors.

Official creditors said the draft agreement failed to satisfy comparability of treatment requirements, a principle intended to ensure that different creditor groups are treated on broadly similar terms during a restructuring process.

The breakdown in talks has widened tensions between Ethiopia and its bondholders. In early February, the bondholder group signaled that it was prepared to seek legal remedies in English courts to enforce payment of outstanding principal and interest obligations under the bond.

The latest notice marks a further escalation in the standoff and raises the prospect of a legal dispute at a time when Ethiopia is continuing efforts to resolve external debt pressures under the Common Framework process.

Source: CNBC Africa