Nigeria Accesses $1.5bn from UAE Lender’s $5bn Swap Deal

By Adedapo Adesanya

Nigeria has received the first tranche of its $5 billion derivatives financing arrangement with the First Abu Dhabi Bank (FAB), the United Arab Emirates’ largest lender.

According to a Bloomberg report published on Friday, the federal government drew about $1.5 billion over the past two weeks through a Total Return Swap (TRS) transaction with the lender.

The report stated that Nigeria will provide naira-denominated securities valued at 133.3 per cent of the loan amount as collateral for the transaction, while international financial institutions continue to express concerns about the risks associated with such derivative-based financing structures.

The financing is expected to support the government’s debt management strategy by replacing more expensive borrowings while helping finance the country’s fiscal deficit.

The first tranche is priced at 395 basis points above the Secured Overnight Financing Rate (SOFR), rising to SOFR plus 400 basis points thereafter.

The transaction further expands Nigeria’s financial relationship with First Abu Dhabi Bank, which had earlier provided about $1.2 billion to support the construction of a section of the ongoing Lagos-Calabar Coastal Highway.

The swap deal has come with much scrutiny from critics and international organisations. Recall that the International Monetary Fund (IMF), after a consultation visit, warned Nigeria against the deal, noting that such transactions are ‌often opaque and complex.

“Our view is that the transactions in these types of structures carry risks. Usually they are opaque, so the terms are not always ⁠very transparent when we reviewed these instruments across countries,” according to the IMF’s mission chief in Nigeria, Mr Christian Ebeke.

Mr Ebeke said Nigeria could instead issue eurobonds to finance its deficits or other means to raise funding, including on concessional terms.

The Senate in April gave its approval to the agreement put forward by President Bola Tinubu, who said his administration intends to use proceeds from the total return swap to refinance expensive debt and pay for infrastructure.