Nigeria’s five-billion-dollar financing arrangement with First Abu Dhabi Bank is entering a new phase, with the bank considering syndicating part of its exposure to other lenders.
The move could spread the risk of the transaction among more banks, while First Abu Dhabi Bank remains Nigeria’s counterparty.
The financing is structured as a total-return swap rather than a conventional Eurobond.
Under the arrangement, Nigeria receives dollars from the bank and provides eligible naira-denominated Federal Government securities as collateral.
The facility allows the Federal Government to draw the funds in stages instead of accessing the entire five billion dollars at once.
Nigeria has so far drawn one-point-five billion dollars, leaving up to three-point-five billion dollars available for subsequent drawdowns.
The government says the facility is intended to support spending and refinance more expensive obligations.
Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, has said the structure allows Nigeria to pay interest only on funds actually drawn, giving the government flexibility while the remaining amount remains unused.
However, the facility carries a floating interest rate, meaning the cost of borrowing can change with global interest rates.
The first tranche attracts the Secured Overnight Financing Rate, SOFR, plus three-point-nine-five percentage points, while subsequent drawdowns carry SOFR plus four percentage points.
With SOFR reported at three-point-eight-eight percent on September 24, the indicative interest rate would be about seven-point-eight-three percent for the first tranche and seven-point-eight-eight percent for subsequent drawdowns, before fees and other contractual costs.
A one-percentage-point increase in the financing rate would add about ten million dollars annually for every one billion dollars outstanding.
If the entire five-billion-dollar facility were drawn, the same increase would translate to roughly fifty million dollars in additional annual interest costs.
