First Abu Dhabi Bank May Syndicate $5bn Nigeria Swap to Reduce Risk

By Adedapo Adesanya

First Abu Dhabi Bank, the United Arab Emirates’ largest lender, is considering selling part of its exposure under Nigeria’s $5 billion total-return swap, Bloomberg reported on Thursday.

People familiar with the matter told the publication that the Abu Dhabi-based bank may syndicate part of the transaction, potentially bringing other financial institutions into the deal and reducing the exposure retained by the lender.

The development concerns the $5 billion structured Total Return Swap facility between Nigeria and First Abu Dhabi, which was approved by the National Assembly earlier this year.

A syndication would allow First Abu Dhabi to distribute part of its exposure to other financial institutions, rather than retaining the entire transaction on its balance sheet.

Under the arrangement, Nigeria accesses Dollar liquidity against Naira-denominated federal government securities pledged as collateral. The facility is structured to be drawn in tranches rather than as a single $5 billion disbursement.

Nigeria has already accessed about $1.5 billion from the facility. The first tranche was priced at 395 basis points above the Secured Overnight Financing Rate (SOFR), while subsequent tranches are expected to carry a margin of 400 basis points above SOFR.

The federal government has said the facility will support budget implementation, priority infrastructure projects and the refinancing of relatively more expensive domestic and external debt.

According to the Debt Management Office (DMO), eligible Naira-denominated federal government-backed securities worth 133.3 per cent of the amount drawn are used as collateral for the facility.

The debt office also said that no oil revenues or strategic national assets were pledged under the arrangement.

The transaction is part of Nigeria’s broader efforts to secure foreign-currency liquidity while managing its financing needs, which have been hampered by successive governments’ inability to raise taxes and wean off borrowings.

The International Monetary Fund (IMF), as well as Fitch, have previously highlighted potential risks associated with derivative-based financing, including the possibility of additional collateral requirements arising from movements in exchange rates.