Tinubu Government has secured $1.5 billion from $5 billion UAE Financing Deal to refinance debt.
NewsOnline Nigeria reports that Nigeria has accessed the first tranche of its $5 billion derivatives-based financing arrangement with the United Arab Emirates’ largest lender, First Abu Dhabi Bank (FAB), as the Federal Government steps up efforts to refinance expensive debt and bridge its budget financing gap.
According to a Bloomberg report published on Friday, the Federal Government drew approximately $1.5 billion over the past two weeks through a Total Return Swap (TRS) transaction with First Abu Dhabi Bank.
The drawdown represents the first disbursement under the $5 billion financing facility approved earlier this year.
Under the terms of the transaction, Nigeria will provide naira-denominated securities worth 133.3 per cent of the loan value as collateral.
However, international financial institutions have raised concerns about the potential risks associated with derivatives-based financing arrangements.
The International Monetary Fund (IMF) warned that aspects of the transaction “could give rise to political constraints on monetary or exchange rate policy.”
Similarly, Fitch Ratings cautioned that dollar-denominated margin calls backed by naira collateral could intensify foreign exchange pressures if domestic interest rates rise or the naira weakens further.
Moody’s Ratings also noted that such swap arrangements introduce additional credit risks not typically associated with conventional commercial borrowing.
According to the report, officials from Nigeria’s Ministry of Finance and the Debt Management Office (DMO) did not respond to requests for comment, while First Abu Dhabi Bank declined to comment on client transactions.
The financing is expected to support the Federal Government’s debt management strategy by replacing higher-cost borrowings while providing additional funding to finance the country’s fiscal deficit.
The first tranche carries an interest rate of 395 basis points above the Secured Overnight Financing Rate (SOFR), rising to SOFR plus 400 basis points thereafter.
Lawmakers had described the pricing as competitive when approving the transaction in April.
The latest financing also deepens Nigeria’s financial relationship with First Abu Dhabi Bank, which previously provided approximately $1.2 billion to support the construction of a section of the Lagos-Calabar Coastal Highway.
Similar Total Return Swap arrangements have previously been used by countries such as Angola and Senegal to access external financing after borrowing conditions in international capital markets became more challenging.
The transaction comes as the Federal Government continues to diversify its funding sources amid persistently high global borrowing costs.
While the financing provides Nigeria with access to substantial external funding without issuing conventional Eurobonds, analysts warn that it also exposes the country to additional foreign exchange and financial market risks.
Earlier this year, the IMF cautioned Nigeria over its plan to raise up to $5 billion through the derivatives-based financing arrangement, noting that such structures are often complex and lack transparency.
The Senate had approved the Total Return Swap facility to refinance costly debt and fund critical infrastructure projects across the country.
The latest drawdown marks the first release under the $5 billion facility and highlights the Federal Government’s increasing reliance on alternative financing instruments to meet its fiscal obligations while managing rising debt servicing costs.
