Fitch warns Nigeria’s $5 billion TRS deal could hide debt risks
By Aboki Forex —
Fitch Ratings has warned that Nigeria’s proposed $5 billion Total Return Swap (TRS) with First Abu Dhabi Bank could obscure sovereign debt risks and complicate any future debt restructuring.
The warning came in a new Fitch report seen by Nairametrics. The report is titled Emerging Market Sovereigns’ Use of Total Return Swaps Raises Risks: Balancing Transparency and Recovery Risks Against Financing Flexibility.
Earlier in 2026, the Nigerian Senate approved the transaction. The goal is to refinance expensive debt and fund critical infrastructure projects. It marks Nigeria’s entry into a financing instrument already used by Angola and Senegal.
What they are saying
The deal was approved in April. It is expected to mature in 2032. It would pledge N6.67 billion worth of local-currency bonds as collateral in exchange for hard-currency liquidity.
Fitch noted that while Total Return Swaps can provide cheaper financing and diversify funding sources, they also carry significant structural and transparency risks.
“A TRS can provide hard-currency liquidity even in difficult market conditions, broaden funding options and reduce borrowing costs relative to conventional market issuance. These advantages can be meaningful for sovereigns with constrained market access or heightened liquidity needs,” Fitch said.
“However, TRS may be structured under contractual agreements whose terms and conditions are only partly disclosed, reducing transparency of the true scale and terms of sovereign borrowing.”
Fitch believes the proposed structure is motivated by funding diversification and liquidity management, not market access constraints. The deal would pledge naira-denominated bonds against hard-currency financing.
“Margin calls payable in U.S. dollars against naira-denominated collateral could intensify liquidity pressures if domestic yields rise or the naira weakens,” Fitch added.
More insights
Total Return Swap transactions are structured as derivatives. They may not always be recorded as conventional public debt. Fitch warned that limited disclosure of their terms could raise concerns about transparency, governance and the true scale of sovereign borrowing.
Fitch said material gaps in transparency could weigh on its Issuer Default Rating assessment, particularly where the terms are not fully disclosed.