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Inside Afreximbank-NNPC $3 billion phantom loan

Eight things to know about NNPC, Afreximbank $3bn  loan deal

The Nigerian National Petroleum Company Limited (NNPC) may have misrepresented its intentions for the $3 billion financing to African Export-Import Bank (Afreximbank) and other lenders, leading to the collapse of the deal, sources with knowledge of the matter tell BusinessDay.

Following a meeting by the NNPC and the consortium that was supposed to provide the loan in Cairo, Egypt on August 16, the parties have only agreed to in principle to some terms and conditions before a statement from the oil firm presented the deal as if it were ready, taking the backers by surprise.

“The NNPC Ltd. and Afreximbank have jointly signed a commitment letter and term sheet for an emergency $3 billion crude oil repayment loan,” the national oil company said in the statement on August 16.

It said the signing, which took place at the bank’s headquarters in Cairo, Egypt, “will provide some immediate disbursement that will enable the NNPC Ltd. to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market”.

The lenders were particularly shocked by the assertion that the financing “will provide some immediate disbursement that will enable the NNPC Ltd. to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilising the exchange rate market,” sources say.

Read also: Eight things to know about NNPC, Afreximbank $3bn loan deal

Therefore the arrangement that had started out with an uneasy discussion for how the financing would unlock critical projects diverged into talks about propping up the naira, raising concerns in the boards of the financial institutions.

Multiple sources confirmed to BusinesDay that following this release, Afreximbank’s board was miffed. Other development financial institutions (DFIs) and commercial lenders that were supposed to be part of the financing deal walked away.

The concern for the board of Afreximbank was that while the NNPC had only secured an indicative term sheet, basically a document outlining non-binding terms and conditions upon which the lender will provide financing, the NNPC presented it as if it were completed.

Worse still, the purpose announced in the NNPC for the loan did not align with the declared intentions in the discussion with lenders.

Afreximbank had issued an indicative term sheet on the condition that other DFIs and lenders were going to join the syndicate to complete the initial 8.3 percent contribution of $250 million by Afreximbank but after the NNPC’s announcement, the deal collapsed.

The NNPC has yet to provide a response as at time of publication.

The state oil firm has found itself forced to enter into different financing arrangements using the country’s crude from various contracts as collateral but as multilateral financial institutions bow to pressure from environmental groups to halt financing for oil and gas projects, the NNPC has seen its options dwindle.

In this case, the NNPC had been seeking a short-term fix to Nigeria’s dwindling dollar supply on account of falling oil production to boost liquidity and remove some pressure on the local currency.

Read also: NNPC, partners sign deal to cut project contract cycle by 180 days

Analysts draw a direct line between the collapse of the financing deal to the naira’s loss of value.

“The fact that the foreign exchange market is in turmoil, with black market premium at 25 percent is an indication that the liquidity that was meant to provide temporary succour to panic buying did not come through,” said Kelvin Emmanuel, CEO of Daily Hills Limited.

Emmanuel said that this may not come as a surprise because multilateral financing institutions with a well-defined environment, ESG framework are becoming constrained to issue a resource-backed loan.

Under the deal, Afreximbank was to provide $250 million as indicative loan financing while other development banks would contribute the rest to make up the $3 billion. Following the pull-out of Afreximbank, other DFIs that would have been part of the syndicated loan also ran for the hills, leading to the collapse of the deal.

Despite the reforms touted by the Tinubu government, the naira has lost over a quarter of its value since he became president largely because the reforms, though market-friendly, lacked cohesion, proper planning and concrete actions.

Read also: Tinubu reverts to defending Naira with NNPC’s $3bn AFREXIM loan deal

For example, the central bank has tried to unify the exchange rates but continues to discriminate against a list of 40 items it banned from accessing forex. It removed petrol subsidies but continues to charge port and taxes in dollars, making importers shun it. Following the rise of oil prices, it has restarted paying petrol subsidies from NLNG dividends.

While the NNPC is seeking resource-backed loans, Nigeria’s crude supply is dwindling. Oil multinationals are keen to leave onshore fields troubled by crude theft and vandalism and local producers are struggling to raise enough cash to start new projects.

“The government needs to restore the confidence of oil corporations to keep drilling like we saw with ExxonMobil at the United Nations General Assembly sidelines,” said Jide Pratt, an energy sector expert, “otherwise, we have a long road ahead.”