Nigeria has accessed the first US$1.5 billion tranche of a planned US$5 billion financing facility arranged with the United Arab Emirates’ largest lender, according to a Bloomberg report, as the government presses ahead with an unconventional funding strategy that has drawn scrutiny over transparency.
The funds were reportedly drawn over the past two weeks through a Total Return Swap (TRS) transaction with First Abu Dhabi Bank PJSC, Bloomberg reported, citing people familiar with the deal who requested anonymity because they were not authorised to discuss the transaction publicly.
Nigerian authorities had not publicly confirmed the reported drawdown by Sunday.
Efforts to obtain comment from the Federal Ministry of Finance were unsuccessful, while Finance Minister and Coordinating Minister of the Economy Wale Edun had not responded to requests for comment, according to local media reports.
The $5 billion facility, approved by Nigeria’s National Assembly earlier this year, forms part of the government’s strategy to diversify external financing sources while lowering borrowing costs.
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The proceeds are expected to be used to refinance existing debt and support infrastructure projects.
The financing structure, based on a Total Return Swap with First Abu Dhabi Bank, has attracted attention from investors and analysts because few details of its terms have been made public.
The International Monetary Fund (IMF) and Fitch Ratings have cautioned that while derivative-based financing can provide governments with additional liquidity, such arrangements should be managed transparently to minimise fiscal and debt sustainability risks.
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The reported drawdown comes as Nigeria’s currency has remained broadly stable despite mounting demand for dollars.
The naira closed at 1,380.9 to the U.S. dollar in the official foreign exchange market on Friday, little changed from the previous session, while trading at around 1,390 per dollar in the parallel market for a third consecutive week.
Analysts attributed the currency’s resilience to rising foreign exchange reserves, sustained foreign portfolio investment inflows and ongoing macroeconomic reforms.
However, they said demand for dollars has increased as investors reposition ahead of a planned dollar-denominated fundraising by Dangote Refinery and Petrochemicals.
The shift has prompted investors to sell naira-denominated assets and convert proceeds into dollars, contributing to increased pressure on the local currency.
Lower international oil prices have also weighed on market sentiment.
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Brent crude has retreated to around $76 per barrel after briefly exceeding $100 during heightened tensions in the Middle East, reducing expectations for Nigeria’s oil export earnings and foreign exchange inflows.
Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co., said investor positioning ahead of Dangote Refinery’s expected dollar fundraising was a key factor behind recent foreign exchange demand.
Jeremiah Ubah, Chief Investment Officer at VNL Capital Asset Management, said investors had been taking profits in the domestic equities market and converting naira holdings into dollars to participate in anticipated dollar-denominated investment opportunities.
