Nigeria has accessed the first tranche of a $5 billion derivatives deal with United Arab Emirates’ largest lender, pressing ahead with a transaction that has been scrutinized for being opaque.
The West African nation, Africa’s biggest oil producer, drew about $1.5 billion in the last couple of weeks from a total return swap transaction with First Abu Dhabi Bank PJSC (FAB:UH), according to Bloomberg citing people familiar with the transaction who asked not to be identified because they aren’t authorized to speak to the media.
Nigeria will provide collateral equivalent to 133.3% of the loan in naira-denominated securities for the transaction. Such deals have been highlighted by the International Monetary Fund and credit assessors including Fitch Ratings and Moody’s Ratings for their inherent risks due to a lack of transparency.
Parts of the deal “could give rise to political constraints on monetary or exchange rate policy,” the IMF said in a regular economic update on the nation earlier this month. Fitch said the margin calls payable in dollars against naira-denominated collateral could generate foreign-exchange pressure either if domestic yields rise or the naira weakens.
Moody’s said such swaps, which have also been tapped by Angola and Senegal, “introduce credit risks that are not present in traditional commercial borrowing.”
The fund will be used to refinance expensive debt and plug a budget deficit as President Bola Tinubu gears up for elections in January at which he will seek another four-year term.
This first tranche of the debt will be priced at 395 basis points above Nigeria’s Secured Overnight Financing Rate (SOFR), and SOFR plus 400 basis points thereafter, which Nigeria’s lawmakers described as competitive when it was approved in April.
The transaction further exposes Nigeria to the lender, which had previously provided the nation with about $1.2 billion of credit to help build part of a new freeway, being constructed by a company owned by an ally of Tinubu.
Total return swaps became prominent in 2021, when similar derivative instruments led to the collapse of Archegos Capital Management LP.
Senegal raised 721 billion CFA francs ($1.3 billion) using the derivatives last year after being shut out of global markets. Angola used the swaps to raise $1 billion as of 2025, according to the International Monetary Fund.
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