FG Pays $22.5m Charges Despite No Interest, Principal Payment on UAE Swap

The Federal Government paid $22.5 million in charges on its controversial $1.5 billion Total Return Swap financing from First Abu Dhabi Bank (FAB) during the second quarter of 2026, according to new data from the Debt Management Office (DMO).

The payment represents 1.5 per cent of the amount drawn so far from the $5 billion financing programme agreed with the United Arab Emirates-based lender.

An analysis of the DMO’s Actual External Debt Service Payments for April to June 2026 showed that the entire $22.5 million was classified as “other charges.” No principal or interest payment was recorded on the facility during the period.

The DMO did not specify the exact nature of the charge, leaving it unclear whether the payment covered arrangement, commitment, transaction or other fees linked to the swap.

Nigeria secured approval for the Total Return Swap programme of up to $5 billion with FAB earlier this year as part of the government’s efforts to raise external financing for the 2026 budget and manage its debt obligations.

Under the arrangement, the Federal Government receives dollar financing while providing naira-denominated government securities as collateral.

The government initially drew $1.5 billion from the facility in June, leaving $3.5 billion available under the approved programme.

DMO data showed that the $1.5 billion remained outstanding as of June 30, 2026, and was classified as “Other Commercial” debt.

The facility differs from Nigeria’s conventional Eurobond borrowing and has attracted scrutiny over its cost, collateral requirements and potential exposure to market movements.

The DMO has clarified that Nigeria did not pledge crude oil revenues, airports, seaports or other strategic national assets as security for the transaction. Instead, the government provided naira-denominated Federal Government securities as collateral.

According to the DMO, collateral of up to 133.3 per cent of the amount drawn could be provided under the arrangement. This means that a $1.5 billion drawdown could require securities worth approximately $2 billion, depending on the applicable valuation.

The transaction has a six-year tenor, with a break option after three years. The first drawdown was priced at SOFR plus 395 basis points, while subsequent tranches are expected to carry a spread of about 400 basis points.

This means Nigeria’s interest payments will fluctuate in line with movements in US short-term interest rates.

The $22.5 million charge was significant compared with other miscellaneous costs incurred on Nigeria’s external obligations during the quarter.

DMO data showed that Nigeria paid a total of $39.25 million in “other charges” across its external debt portfolio between April and June. The FAB swap therefore accounted for about 57.3 per cent of all such charges.

Commercial creditors accounted for $32.85 million of the total other charges, meaning the swap represented about 68.5 per cent of miscellaneous charges linked to Nigeria’s commercial external borrowing.

Nigeria also has another substantial debt exposure to First Abu Dhabi Bank. The government paid $33.38 million in interest on an existing FAB syndicated facility during the second quarter, in addition to $12,413 in other charges. Total debt service on that facility amounted to $33.40 million, with no principal repayment recorded.

As of the end of June, Nigeria owed $1.87 billion under the syndicated FAB facility, in addition to the $1.5 billion Total Return Swap. The two obligations brought the Federal Government’s outstanding exposure to the UAE lender to approximately $3.37 billion, representing about 6.2 per cent of Nigeria’s $54.52 billion external debt stock.

The transaction had earlier raised concerns among international institutions over the potential risks associated with sovereign Total Return Swaps.

The International Monetary Fund warned Nigeria to exercise caution in pursuing the $5 billion financing arrangement with FAB, describing such structures as opaque and potentially risky despite Nigeria’s improved access to international capital markets.

The IMF’s then Resident Representative for Nigeria, Christian Ebeke, said the transaction and similar structures could carry risks because their terms were not always transparent.

He also warned that such arrangements could expose governments to additional financial risks if the value of underlying assets declined or exchange rates moved adversely.

Global rating agency Fitch Ratings also warned that the arrangement could expose Nigeria to additional debt-management and liquidity risks.

Fitch noted that while Total Return Swaps can provide governments with hard-currency liquidity, diversify funding sources and potentially reduce borrowing costs, they can also create transparency concerns and increase exposure to market shocks.

The DMO has defended the arrangement, saying it provides an alternative source of financing and contains safeguards to manage risks related to exchange rates, interest rates, collateral valuation and refinancing.

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