Nigeria Strengthens UAE Financial Ties with $1.5bn Funding Agreement
ABUJA — Nigeria has drawn the first $1.5 billion from a $5 billion financing arrangement with First Abu Dhabi Bank (FAB), the country’s finance minister confirmed on Monday.
The deal, a Total Return Swap (TRS) structured as a derivatives transaction, was signed in January and approved by Nigeria’s National Assembly in March. Finance Minister Taiwo Oyedele said the facility would be used to refinance expensive debt, fund critical infrastructure projects, and support budget implementation.
The government deliberately structured the financing in phases rather than drawing the entire $5 billion at once, Oyedele explained. “If you take everything at once, you start paying interest even though you’re not spending all of it now,” he said. The phased approach is intended to reduce borrowing costs by ensuring Nigeria only pays interest on funds that have been drawn.
The initial tranche is priced at 395 basis points above the Secured Overnight Financing Rate (SOFR), with subsequent tranches at SOFR plus 400 basis points. Nigeria will provide 133.3% of the loan value in naira-denominated assets as collateral.
Criticism and Transparency Concerns
The deal has attracted scrutiny over its structure and lack of transparency. The International Monetary Fund warned Nigeria against proceeding with the arrangement, describing such financial structures as often opaque and difficult to assess in terms of risk exposure.
Christian Ebeke, the IMF’s mission chief for Nigeria, said Total Return Swaps “carry risks” and that “the terms are not always very transparent”. The IMF also warned that the arrangement could trigger additional liabilities if the value of underlying assets declines or exchange rates move unfavourably.
Despite the concerns, President Bola Tinubu has pitched the deal as a means to rebuild investor confidence in Nigeria’s economy. The agreement expands Nigeria’s financial ties with FAB, which previously provided about $1.2 billion to support construction of a section of the Lagos-Calabar Coastal Highway.
Angola and Senegal have also brokered similar derivatives deals with First Abu Dhabi Bank to cut their borrowing costs.
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