The Federal Government paid $22.5m in charges on its controversial $1.5bn Total Return Swap financing from First Abu Dhabi Bank in the second quarter of 2026, new data from the Debt Management Office have shown.
The payment represents 1.5 per cent of the amount so far drawn from the $5bn 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 $22.5m was classified entirely as “other charges”, with no principal or interest payment recorded on the facility during the period.
The DMO did not explain the nature of the charge in its latest report, making it unclear whether the payment covered arrangement, commitment, transaction or other fees associated with the swap.
Nigeria secured approval for a Total Return Swap programme of up to $5bn with First Abu Dhabi Bank earlier this year, amid government 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 drew an initial $1.5bn from the facility in June, leaving $3.5bn available under the approved programme.
The DMO’s external debt stock data confirmed that the $1.5bn remained outstanding as of June 30, 2026 and was classified under “Other Commercial” debt.
The facility is structured differently from Nigeria’s conventional Eurobond borrowing and attracted scrutiny over its cost, collateral requirements, and potential exposure to market movements.
The DMO subsequently clarified that Nigeria did not pledge crude oil revenues, airports, ports or other strategic national assets as security for the transaction. Instead, the government provided naira-denominated Federal Government securities as collateral.
According to the agency, collateral of up to 133.3 per cent of the amount drawn could be provided under the arrangement. This implies that a $1.5bn drawdown could require securities worth about $2bn, depending on the applicable valuation.
The transaction has a six-year tenor and provides for a break 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 the interest payable by Nigeria will fluctuate with movements in US short-term interest rates. The $22.5m charge was also substantial when compared with other miscellaneous costs incurred on the country’s external obligations during the quarter.
DMO data showed that Nigeria paid a total of $39.25m in “other charges” across its external debt portfolio between April and June. The FAB swap consequently accounted for about 57.3 per cent of all such charges during the period.
Commercial creditors accounted for $32.85m of the total other charges, meaning the swap alone represented about 68.5 per cent of miscellaneous charges associated with Nigeria’s commercial external borrowing.
Beyond the swap, Nigeria has another sizeable debt exposure to First Abu Dhabi Bank. The government paid $33.38m in interest on an existing FAB syndicated facility during the second quarter, alongside $12,413 in other charges. Total debt service on that facility amounted to $33.40m, with no principal repayment recorded.
At the end of June, Nigeria owed $1.87bn under the syndicated FAB facility in addition to the $1.5bn Total Return Swap. The two obligations brought the Federal Government’s outstanding exposure to the UAE lender to about $3.37bn, representing roughly 6.2 per cent of Nigeria’s $54.52bn external debt stock.
The transaction had earlier attracted concerns from international institutions over the potential risks associated with sovereign Total Return Swaps.
The International Monetary Fund earlier warned Nigeria to tread carefully in pursuing the $5bn Total Return Swap financing arrangement with First Abu Dhabi Bank, describing such structures as opaque and potentially risky, despite the country’s improved access to international capital markets.
The immediate past IMF Resident Representative for Nigeria, Christian Ebeke, disclosed this during a virtual press briefing on the Fund’s 2026 Article IV Consultation Report on Nigeria.
Speaking on the proposed transaction, Ebeke, who is now the Director of the IMF Regional Technical Assistance Centre for West Africa in Abidjan, said, “We say in the report, and our view is that the transaction and these types of structures carry risks. Usually, they are opaque. So, the terms are not always very transparent when we review these instruments across countries.”
Ebeke noted that beyond concerns over transparency, such financing arrangements could expose countries to additional financial risks if underlying assets lose value or exchange rates move adversely.
“They also carry risk, as we flag in the report, the margin calls in the case that the value of the asset drops or the currency depreciates,” he said.
According to him, Nigeria currently has alternative funding options that may be less complicated and more transparent. Also, global rating agency Fitch Ratings warned that the total return swap financing arrangement could expose Nigeria to additional debt-management and liquidity risks despite its potential benefits.
In a special report obtained, Fitch said that while total return swaps can provide governments with hard-currency liquidity, diversify funding sources, and lower borrowing costs, the structure could create transparency concerns, increase exposure to market shocks, and weaken recovery prospects for conventional creditors if not carefully managed.
The DMO has defended the arrangement, saying it provides an alternative source of financing and has safeguards to manage risks associated with exchange rates, interest rates, collateral valuation, and refinancing.
