Why FG Took $1.5bn from $5bn First Abu Dhabi Bank Facility — Oyedele

Why FG Took $1.5bn from $5bn First Abu Dhabi Bank Facility — Oyedele

The Federal Government has explained why it has so far drawn $1.5 billion from the $5 billion financing arrangement secured with First Abu Dhabi Bank (FAB), saying the facility was deliberately structured to refinance more expensive debt and reduce the government’s overall financing cost.

The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, gave the explanation on Wednesday in Abuja while responding to questions from journalists at a press conference on Nigeria’s economic reform scorecard.

Oyedele said the transaction should be assessed not merely by its structure but by its cost and the savings it is expected to deliver to the country.

He explained that much of Nigeria’s existing debt portfolio was contracted at fixed interest rates when domestic and international borrowing costs were significantly higher.

According to him, Nigerian government borrowing previously attracted double-digit yields, while current yields have fallen to around seven to 7.5 per cent.

The minister said Nigeria could not automatically benefit from the decline in borrowing costs on its existing fixed-rate debt.

He said the FAB transaction was structured differently, using a flexible-rate arrangement that allows the government to benefit if interest rates decline, although the cost would increase if rates rise.

“The all-in rate for this transaction is lower than our existing portfolio. So, the objective is to refinance existing debt and save money,” Oyedele said.

The financing arrangement, according to details provided by the minister, is structured as a Total Return Swap rather than a conventional loan and is backed by Nigerian government securities as collateral.

The broader $5 billion external…