The legislative authorities in Nigeria have approved an ambitious initiative aimed at securing $5 billion from First Abu Dhabi Bank through a financial derivatives deal designed to curb rising borrowing costs. This decision comes as several African nations are increasingly turning to alternative financing methods amid soaring yields exacerbated by regional tensions, according to Bloomberg.
Nigerian lawmakers backed President Bola Tinubu’s request to execute a “total return swap” with First Abu Dhabi Bank, as part of a government strategy to obtain low-cost funding to address budget deficits, particularly after expanding the 2026 expenditure plan by 17%. Thus, Nigeria, Africa’s largest crude oil producer, joins countries like Angola and Senegal in resorting to swap agreements when international markets become prohibitively expensive or inaccessible.
In a letter to the Senate, President Tinubu specified that the proceeds from this transaction would be allocated to infrastructure projects, including road and port development, as well as refinancing previous high-cost debts. The terms of the agreement require Nigeria to provide guarantees equivalent to 133.3% of the loan value in the form of securities denominated in the local currency, naira. The debt will be priced with a margin of 395 basis points above the benchmark interest rate, Sofor, for the first tranche, and 400 basis points for subsequent tranches.
The significance of this deal is highlighted when comparing its costs to current yields; the borrowing rate based on Sofor was around 3.63% at the end of March, while yields on Nigeria’s dollar bonds maturing in 2034 surged to 7.97%, up from 7.3% before the onset of tensions. A report by the Senate committee described these conditions as highly competitive compared to current European bond yields, noting that the facility has a 6-year duration with a review clause after 3 years and provisions for annual renewal.
In related developments, President Tinubu has sought approval for a $1 billion credit facility from the British Export Finance Agency aimed at rehabilitating two major ports in Lagos, the country’s commercial hub, reflecting a significant Nigerian shift towards diversifying financing sources amid ongoing economic pressures.