By Opeyemi Adelakun
The Federal Government incurred $22.5m in additional charges on its $1.5bn financing arrangement with First Abu Dhabi Bank (FAB) in the second quarter of 2026, according to the latest external debt service figures released by the Debt Management Office.
The payment, made between April and June, was recorded entirely under “other charges”, with no principal or interest repayment listed against the facility during the three-month period.
The amount represents 1.5 per cent of the $1.5bn drawn from the UAE-based bank under a financing programme approved at up to $5bn.
The DMO’s report did not specify the services or costs covered by the $22.5m, leaving it unclear whether the sum represented arrangement, commitment, transaction or other fees.
Nigeria secured the Total Return Swap facility as part of efforts to raise foreign currency for budget financing and debt management. The arrangement allows the government to obtain dollar funding while providing naira-denominated Federal Government securities as collateral.
The initial $1.5bn drawdown was made in June 2026, leaving $3.5bn available under the approved programme. DMO records showed that the amount remained outstanding as of June 30.
The financing has attracted attention because of its structure, cost and potential exposure to market fluctuations. However, the DMO has maintained that Nigeria did not pledge crude oil revenues, airports, seaports or other strategic national assets to secure the facility.
Instead, the agency said the collateral consisted of government securities, which could be valued at up to 133.3 per cent of the amount borrowed. On a $1.5bn drawdown, this could translate to securities worth approximately $2bn, depending on valuation.
The transaction has a six-year tenor, with an option to break after three years. Its first tranche carries an interest spread of the Secured Overnight Financing Rate (SOFR) plus 395 basis points, while subsequent drawdowns are expected to attract a spread of about 400 basis points.
Because the interest rate is linked to SOFR, Nigeria’s financing costs could change alongside movements in US short-term interest rates.
Swap accounts for more than half of quarterly charges
The $22.5m payment represented approximately 57.3 per cent of the $39.25m Nigeria recorded as other charges across its entire external debt portfolio during the second quarter.
Commercial creditors accounted for $32.85m of the total, meaning the FAB swap represented about 68.5 per cent of miscellaneous charges linked to the country’s commercial external borrowing.
Nigeria also serviced a separate syndicated loan from First Abu Dhabi Bank during the period, paying $33.38m in interest and another $12,413 in other charges. No principal repayment was recorded on that facility.
By the end of June, the country’s outstanding obligations to FAB stood at approximately $3.37bn, comprising $1.87bn under the syndicated facility and the $1.5bn swap drawdown.
The combined exposure represented about 6.2 per cent of Nigeria’s $54.52bn external debt stock at the time.
IMF, Fitch raise concerns over risks
The financing structure had previously attracted warnings from the International Monetary Fund over the potential risks associated with sovereign Total Return Swaps.
Christian Ebeke, the IMF’s immediate past Resident Representative in Nigeria, said the Fund considered such arrangements potentially opaque, with terms that might not always be sufficiently transparent.
Speaking during a virtual briefing on the IMF’s 2026 Article IV Consultation Report on Nigeria, Ebeke said the structures could also expose governments to losses when collateral values fall or exchange rates move unfavourably.
He specifically pointed to the possibility of margin calls arising from a decline in asset values or currency depreciation.
Global credit rating agency Fitch Ratings also warned that the arrangement could create debt-management and liquidity pressures.
In a special report, Fitch acknowledged that Total Return Swaps could provide access to foreign currency, diversify funding sources and potentially reduce borrowing costs. However, it cautioned that inadequate management could heighten exposure to market shocks, undermine transparency and affect the recovery prospects of conventional creditors.
The DMO has defended the financing, maintaining that it offers an alternative funding channel and includes measures to manage foreign exchange, interest rate, collateral valuation and refinancing risks.
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