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Nigeria has drawn down $1.5 billion from its $5 billion derivatives financing arrangement with First Abu Dhabi Bank (FAB), which is majority-owned by public and private entities of the United Arab Emirates, with foreign investors holding the minority stake.

The deal, approved by the country’s National Assembly in March, is structured as a Total Return Swap (TRS). It requires Nigeria to pledge naira-denominated securities equal to 133.3% of the loan amount. For the full $5 billion facility, this amounts to $6.65 billion in collateral. The first tranche was priced at 395 basis points (bps) above the Secured Overnight Financing Rate (SOFR), with subsequent tranches expected at SOFR + 400bps.

Nigeria’s public debt stood at $110.97 billion (₦159.27 trillion) at the end of 2025, according to the Debt Management Office, with debt service accounting for over 80% of federal revenues. The IMF has warned that Nigeria’s debt trajectory is unsustainable without stronger revenue mobilisation, while Fitch Ratings and Moody’s have flagged transparency and foreign exchange risks directly linked to TRS structures.

The deal highlights the country’s mounting debt-service challenge and its strategic pivot towards unconventional, complex borrowing structures.

Unlike traditional Eurobonds, which are straightforward debt instruments with fixed coupons and maturities, TRS financing is more complex and less transparent. While this TRS deal provides immediate liquidity at headline interest costs lower than those currently available on the open market, it exposes Nigeria to severe structural risks. Because repayment obligations are dollar-denominated while the underlying collateral and national revenues remain naira-based, the arrangement significantly amplifies Nigeria's vulnerability to currency depreciation and rising domestic yields.

Nigeria’s reliance on TRS financing reflects an active effort to bypass the high interest rates prevailing in international capital markets. While recent macroeconomic reforms have maintained Nigeria's access to the Eurobond market, the high yields demanded by global investors have compelled the administration to seek alternative financing. 

Analysts note that while the FAB loan provides critical short-term liquidity, it deepens Nigeria’s long-term debt-service burden and raises further questions about fiscal sustainability.