Nigeria has accessed the first tranche of its $5 billion derivatives financing arrangement with the United Arab Emirates’ largest lender, marking the latest step in the Federal Government’s strategy to refinance expensive debt and bridge its budget financing gap.
- +FG accesses $1.5 billion from $5 billion UAE derivatives financing deal
This is according to a Bloomberg report published on Friday.
This is 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 First Abu Dhabi Bank (FAB).
The financing forms part of the broader $5 billion facility approved earlier this year.
The report stated that Nigeria will provide naira-denominated securities valued at 133.3% 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.
Moody’s Ratings said such swap arrangements “introduce credit risks that are not present in traditional commercial borrowing.”
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.
Similar Total Return Swap arrangements have been used by Angola and Senegal to raise external financing after access to international capital markets became more difficult.
The financing comes as the Federal Government continues efforts to diversify its funding sources amid elevated borrowing costs in global financial markets.
The transaction provides Nigeria with access to sizeable external financing without issuing conventional Eurobonds, but it also introduces additional financial and foreign exchange risks.
Nairametrics earlier reported that the IMF cautioned Nigeria over its plan to raise up to $5 billion through a derivatives-based financing arrangement with First Abu Dhabi Bank.
The IMF said such financing structures are often complex and lack transparency.
The latest drawdown marks the first disbursement under the $5 billion facility and underscores the Federal Government’s increasing reliance on alternative financing instruments to meet its fiscal obligations.
