Fitch Ratings Warns on Nigeria's $5bn Swap Risks

Fitch Ratings issued a warning on September 14 regarding Nigeria's $5bn Total Return Swap with First Abu Dhabi Bank, indicating that the financing structure could pose risks to government liquidity, debt transparency, and creditor treatment if Nigeria faces financial difficulties. The transaction allows Nigeria to access US dollar liquidity by pledging naira-denominated Federal Government securities, with a maximum value of $5bn and a six-year tenor.

The collateral requirement is set at 133.3 percent of the amount drawn, meaning that a full draw would necessitate approximately $6.67bn in pledged securities. While this structure provides Nigeria with dollar liquidity without solely depending on Eurobond issuance, Fitch cautioned that a decline in the market value of the pledged bonds could trigger additional collateral demands, creating a mismatch between Nigeria's need for foreign exchange liquidity and the swap's margining provisions.

The Debt Management Office stated that the transaction includes monthly margining and a five-business-day cure period if collateral falls below the required level.