FG Draws $1.5bn from $5bn UAE Financing Deal

Nigeria has drawn the first tranche of about $1.5 billion from a $5 billion financing arrangement with First Abu Dhabi Bank (FAB), Bloomberg reported on Friday.

The amount was accessed over the past two weeks via a Total Return Swap (TRS) transaction that forms part of a broader $5 billion facility approved earlier this year.

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

The news agency reported that Nigeria will provide naira‑denominated securities equal to 133.3 per cent of the loan value as collateral.

Recall that international institutions had raised concerns about risks tied to the derivative‑based financing.

The International Monetary Fund (IMF) had warned that parts of the deal “could give rise to political constraints on monetary or exchange rate policy,”

Also, Fitch Ratings equally raised concerns that dollar‑denominated margin calls against naira collateral could add foreign‑exchange pressure if domestic yields rise or the naira weakens.

On its part, Moody’s Ratings had said the swap structure “introduces credit risks that are not present in traditional commercial borrowing.”

The report said the financing is intended to help the government refinance more expensive debt and narrow its budget gap, and that lawmakers had described the pricing as competitive when they approved the arrangement in April.

The deal expands Nigeria’s financial ties with FAB, which previously provided about $1.2 billion to support part of the Lagos‑Calabar Coastal Highway.

The report added that similar TRS arrangements have been used by Angola and Senegal to raise external financing after access to international capital markets became more difficult.

The article said the IMF had earlier cautioned that derivatives‑based financing can be complex and lack transparency.

It also reminded readers that Total Return Swaps drew global attention after instruments of that type were linked to the collapse of Archegos Capital Management in 2021

Bloomberg described the drawdown as the first disbursement under the $5 billion facility and said it underscored the federal government’s growing use of alternative financing to meet fiscal needs.