Nigeria has accessed the first tranche of its $5 billion derivatives financing arrangement with the United Arab Emirates’ largest lender, marking a significant step in the Federal Government’s strategy to refinance expensive debt and bridge its budget financing gap. This development was reported by Bloomberg on Friday, 2026-06-26.
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 (FAB). This financing is part of the broader $5 billion facility that was approved earlier this year.
Nigeria will provide naira-denominated securities valued at 133.3% of the loan amount as collateral for the transaction. International financial institutions have continued to express concerns regarding the risks associated with these derivative-based financing structures.
The International Monetary Fund (IMF) warned that elements of the transaction “could give rise to political constraints on monetary or exchange rate policy.” Fitch Ratings noted that dollar-denominated margin calls against naira collateral could increase foreign exchange pressure if domestic yields rise or the naira depreciates.
Moody’s Ratings stated that such swap arrangements “introduce credit risks that are not present in traditional commercial borrowing.” Officials from Nigeria’s Ministry of Finance and the Debt Management Office did not respond to requests for comment, while First Abu Dhabi Bank declined to comment on client transactions.
This financing is expected to support the government’s debt management strategy by replacing more expensive borrowings, while also helping to finance the country’s fiscal deficit. The first tranche is priced at 395 basis points above the Secured Overnight Financing Rate (SOFR), rising to SOFR plus 400 basis points thereafter.
Nigerian lawmakers had previously described the pricing as competitive when they approved the transaction in April. This transaction further expands Nigeria’s financial relationship with First Abu Dhabi Bank, which had earlier provided about $1.2 billion to support the construction of a section of the Lagos-Calabar Coastal Highway.
Similar Total Return Swap arrangements have been utilized by Angola and Senegal to raise external financing, especially after access to international capital markets became more challenging. The financing comes as the Federal Government continues its efforts to diversify funding sources amidst elevated borrowing costs in global financial markets.
While the transaction provides Nigeria with access to sizeable external financing without issuing conventional Eurobonds, it also introduces additional financial and foreign exchange risks. Nairametrics had 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, citing that such financing structures are often complex and lack transparency.
The Senate approved the Total Return Swap arrangement earlier this year to refinance costly debt and fund critical infrastructure. In December, the Federal Government also secured about $1.2 billion in financing from the UAE to support the construction of a key section of the Lagos-Calabar Coastal Highway. Total Return Swaps gained global attention after similar derivative instruments were linked to the collapse of Archegos Capital Management in 2021.
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.
