On Monday, the Nigerian Naira traded higher after Africa Export-Import Bank (AfreximBank) syndicated foreign currency (FCY) loans backed by oil entered the economy months after they were initially announced.
The naira recovered equilibrium after crossing the red line early in the year, dropping to N1,035 at the official window, with the anticipation that the hefty quantity will saturate already constricted currency market conditions.
According to FMDQ statistics, the Naira edged the greenback by 5.79% in the official market, closing at N838.95 per dollar, down from N890.54 per dollar the previous day.
However, the Naira fell against the US dollar in the parallel market, falling to N1,277 per dollar as FX demand exceeded supply in the market.
Nigeria has shifted attention to managing its worsening local currency exchange following the scarcity of US dollar inflows. In June, the local currency was depreciated by 40% to reduce its relative overvaluation and obtained a market clearing rate. This expectation has not been met as the exchange rate continues to worsen, with a widening gap between the official and parallel markets.
To boost the supply side, the Central Bank recently announced the resumption of OMO issuance to enhance FX flow and system liquidity management. Last week, the African Export-Import Bank (Afreximbank) announced the successful disbursement of the initial tranche of the syndicated $3.3 billion crude oil prepayment loan to the Nigerian National Petroleum Company Limited (NNPC). The bank said the initial disbursement was about $2.25 billion, the second and final tranche of $1.05 billion expected to be disbursed later.
The bank described the facility as a “landmark financing and Nigeria’s largest crude oil prepayment facility as well as one of the largest syndicated loans raised in Africa in 2023. “Investors were keen to consider ticket sizes of $250 million and $500 million amidst current headwinds and year-end pressures in the loan markets,” the bank said on Saturday.
The terms for the 5-year facility, which have attracted critical reviews in Nigeria in recent times because of its impact on the country’s rising debt profile, carry a margin of 6.0 per cent per annum above the 3-month secured overnight financing rate.
Also, the transaction structure has an embedded price balance mechanism where 90 per cent of all excess cash from the sale of the committed barrels of crude oil (after debt service) would be released, while the balance of 10 per cent would be used to prepay the facility.
