Nigeria plans $5 billion total return swap with UAE lender

LONDON/ABUJA, April 2 (Reuters) - Nigeria plans to borrow up to $5 billion through a derivatives agreement with First Abi Dhabi Bank, the government said this week, as the war in Iran keeps the costs of traditional debt issuance elevated.

While Nigeria is shielded from the worst impact of the Iran war as Africa's largest oil exporter, emerging-market borrowing costs have risen broadly since the conflict began in February and bond sales have largely paused.

Nigeria is joining other Africa borrowers including Senegal and Angola that have tapped similar arrangements over the past year.

• The proceeds from the total return swap, or TRS, will go toward infrastructure projects and refinancing "more expensive" domestic and external debts, according to a document filed in the National Assembly.

• The TRS enabled flexibility and curtailed immediate fiscal pressure, according to the document.

• The loan will be backed by naira-denominated securities that will exceed the value of the loan by as much as 33.3% according to the documents.

• The money will be withdrawn in tranches, and the facility has a six-year tenor with a three-year break clause.

• The pricing is SOFR +3.95% for the first tranche and 4% for subsequent tranches, which the document said "is considered competitive relative to prevailing Eurobond yields."

• The government will make U.S. dollar cash payments to the bank "upon demand" if the value of the collateral falls below the initial value due to price or foreign exchange moves.

• If the collateral exceeds the issuance value, the excess would be returned to the government.

• Banks have said that alternatives to eurobond borrowing, including TRS facilities and private placements, could become more popular the longer the war keeps borrowing costs elevated.