Nigeria is planning to raise up to US$5 billion through a total return swap (TRS) with First Abu Dhabi Bank, government documents showed this week, as the ongoing war in Iran pushes up traditional borrowing costs for emerging markets.
The facility, aimed at funding infrastructure projects and refinancing higher-cost domestic and external debt, comes as bond issuance by African governments has largely paused due to elevated global borrowing costs. Nigeria, Africa’s largest oil exporter, has been relatively shielded from the worst direct effects of the conflict, but rising interest rates and market uncertainty have made conventional eurobond sales expensive.
“The total return swap provides flexibility and curtails immediate fiscal pressure,” the document submitted to Nigeria’s National Assembly stated.
Under the arrangement, the loan will be backed by naira-denominated securities valued up to 33.3 percent above the nominal loan amount. The funds are to be drawn in tranches over a six-year tenor, with a three-year break clause. Pricing for the first tranche is set at SOFR plus 3.95 percent, with subsequent tranches at 4 percent — levels considered competitive relative to prevailing eurobond yields, the filing said.
A total return swap allows the government to receive cash flows linked to the underlying assets while transferring associated risks to the bank. Nigeria will make U.S. dollar payments if the value of the collateral falls below the loan amount due to price or currency fluctuations, while any excess will be returned to the government.
African governments have increasingly turned to alternative financing mechanisms such as TRS arrangements and private placements amid global market volatility. Senegal and Angola have pursued similar deals over the past year, seeking to mitigate the impact of rising borrowing costs and maintain fiscal flexibility.
Emerging-market borrowing costs have surged since the February outbreak of hostilities in Iran, which disrupted global oil supply and triggered spikes in energy and insurance costs. Although Nigeria benefits from high oil revenues, uncertainty in global capital markets has constrained traditional debt issuance.
The TRS facility is designed to give the Nigerian government immediate access to liquidity while postponing direct borrowing until market conditions improve. Analysts said such structures may become more common if geopolitical tensions continue to inflate borrowing costs.
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“This is part of a broader trend of African sovereigns seeking innovative financing instruments to avoid expensive eurobond issuance during periods of elevated market stress,” said a Lagos-based financial analyst. “The TRS allows Nigeria to access dollars for critical infrastructure projects without taking on prohibitively expensive debt upfront.”
The facility also highlights the growing role of Gulf-based lenders in African capital markets. First Abu Dhabi Bank, one of the largest banks in the United Arab Emirates, has been expanding its presence in emerging-market finance, providing structured financing options tailored to government and corporate clients.
Nigeria’s economy, which grew by an estimated 3.9 percent in 2025, faces mounting fiscal pressures from infrastructure needs, public-sector wages, and the cost of servicing domestic and external debt. The TRS arrangement is expected to help smooth cash flows and refinance higher-cost obligations, reducing immediate pressure on the federal budget.
While the total return swap does not carry the same market visibility as eurobond issuance, it allows governments to raise significant capital under controlled terms, making it an increasingly attractive option amid geopolitical uncertainty and volatile credit markets.
Officials in Abuja said the government will submit the TRS proposal to the National Assembly for approval before funds are disbursed, with final terms and tranches subject to market conditions and oversight.
The deal underscores the challenges faced by African borrowers navigating a complex global financial landscape while seeking to fund critical development projects and manage debt sustainability during a period of heightened uncertainty.
