Slice off Nigeria’s FX pressure in Afreximbank $2.25bn to NNPCL

Onome Amuge

Nigeria took a little slice off its foreign exchange pressure following the successful arrangement by the African Export-Import Bank (Afreximbank) of a syndicated $3.3 billion crude oil prepayment facility sponsored by the Nigerian National Petroleum Company Limited (NNPCL) and its disbursement of $2.25 billion of the amount to the national oil company.

A huge drop in foreign exchange earnings and external reserves, as well as the drying up of foreign portfolio and direct investments, has meant that Africa’s largest economy by gross domestic product (GDP) has been haemorrhaging on foreign currency availability for an economy that is largely import dependent and relies on crude oil exports for nearly all of its foreign exchange earnings.  

The syndicated financing arrangement between Afreximbank and NNPCL  is structured as a two-tranche facility, with the first tranche of $2.25 billion already disbursed to NNPCL. The second tranche of $1.05 billion is expected to be disbursed subsequently.

The United Bank for Africa Plc (UBA), one of Africa’s leading financial institutions, played a crucial role in the transaction, serving as the Local Arranger and Onshore Account Bank. The syndicated financing is expected to provide a much-needed boost to the Nigerian economy, helping to ease the country’s foreign exchange illiquidity and stabilise its currency market.

The transaction represents a significant achievement for Nigeria, being the largest crude oil prepayment facility ever raised in the country and one of the largest syndicated loans in Africa in 2023. The terms of the 5-year facility include a competitive margin of 6.0 percent per annum above the 3-month  secured overnight financing rate (SOFR), providing a cost-effective source of funding for NNPCL. 

Under the terms of the deal, NNPCL will be able to release up to 90 percent of any excess cash generated from the sale of the committed barrels after servicing the facility’s debt. The remaining 10 percent will be used to prepay the facility, effectively reducing the total amount owed and lowering the overall cost of the financing. Furthermore, the free cash flow generated from the sale of future crude oil cargoes pledged to the facility will be available for use by NNPCL.

The syndicated financing was arranged by a diverse group of financial institutions, including the African Export-Import Bank and Gunvor International BV, a multinational energy and commodities trading company. Sahara Energy Resources Limited, an African-owned energy and infrastructure conglomerate, also participated in the financing. 

The successful arrangement of this financing by Afreximbank is a testament to the institution’s expertise and experience in structuring complex oil and gas deals in Africa. Afreximbank has a proven track record in successfully arranging similar deals in Angola, the Republic of Congo, South Sudan, Chad, Egypt, Côte d’Ivoire, Ghana, and elsewhere. 

Despite challenging market conditions, Afreximbank said it was able to structure and close the financing deal thanks to its in-depth knowledge and understanding of the oil and gas sector in Africa. As the sole mandated lead arranger, technical and modelling bank, and bookrunner, Afreximbank played a leading role in structuring the transaction and putting together the syndicate of lenders. The bank also acted as facility agent, offshore account bank, intercreditor agent, and collateral agent, overseeing and managing all aspects of the financing. 

Commenting on the successful financial close, Benedict Oramah,  Afreximbank president and chairman of the board of directors highlighted the significance of the deal and its impact on the African economy. He also emphasised the bank’s commitment to supporting African economies, especially during difficult times like the current global economic crisis.

“The disbursement of the initial $2.25 billion under the facility will support Nigeria’s long-term economic stability, ease access to import financing for raw materials and essential goods, support industrialisation and trade development efforts. We are pleased that despite the typical year-end pressures, our partners and investors committed the funds required in record time. We thank them for their support,” Oramah said.

Mele Kolo Kyari, NNPCL group chief executive officer, also weighed in on the importance of this financing, stating that the proceeds will be instrumental in improving macro-economic stability in Nigeria. He noted that the availability of the financing demonstrates NNPCL’s commitment to being a responsible steward of the country’s resources and a reliable partner for economic development.

According to Kyari, the fact that the financing attracted the participation of a diverse group of syndication firms, both global and regional, is a clear sign of confidence in the Nigerian market.

On his part, Oliver Alawuba, group managing director/CEO of UBA, stated that the bank is pleased to be part of the historic deal, which is a clear demonstration of UBA’s commitment to Africa’s economic development. Alawuba expressed confidence that the financing will have a positive impact on Nigeria’s economy.