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AfreximBank engages oil traders for $3 billion loan financing for NNPCL – Report 

AfeximBank is reportedly reaching out to oil traders to finance a $3 billion it pledged to the Nigerian National Petroleum Company Limited weeks ago.

This is according to a September 27 Reuters report. Citing reliable sources, Reuters says that AfreximBank is actively engaging with oil traders to secure a crucial $3 billion loan aimed at bolstering Nigeria’s state oil company and stabilizing the depreciating naira.  

According to Reuters, in recent weeks, AfreximBank has initiated discussions with various traders, gauging their interest in providing the necessary funding through an oil-backed loan for the Nigerian National Petroleum Company Limited (NNPCL).

The report also highlights that the institution is dedicated to formulating the precise terms that will be presented to these trading entities.  

An oil industry executive, intimately involved in the ongoing negotiations, disclosed to Reuters that there exists considerable interest among the traders, contingent upon the finalized terms.

The executive further emphasized that an upswing in oil prices, crossing the $90 per barrel threshold, would significantly bolster enthusiasm for participating in this financial arrangement. 

In this prospective arrangement, traders willing to invest would be reimbursed through physical oil cargoes.

The bank is actively strategizing to ascertain the quantity of oil that will be allocated to these traders as part of the exchange for their financial support, as revealed by one of the sources who spoke to Reuters. 

Backstory 

On August 16, 2023, the Nigerian National Petroleum Company Limited (NNPCL) and AfreximBank made a joint announcement from Cairo, Egypt.

Both entities officially inked a commitment letter and Termsheet for an urgent $3 billion loan, designated specifically for the repayment of crude oil. 

The primary objective of this loan was to empower NNPC Limited to play a pivotal role in supporting the Federal Government’s ongoing fiscal and monetary policy reforms, strategically aimed at fortifying and stabilizing the exchange rate market, an imperative step in the nation’s economic landscape. 

Further details regarding the agreement were subsequently provided by the Federal Government, shedding light on the nature of the loan. Contrary to misconceptions, it was clarified that this financial arrangement did not entail a crude-for-refined products swap.  

Instead, it constituted an upfront cash loan, secured against the future proceeds from a designated fraction of crude oil production.

The government made it clear that the NNPCL’s exposure was carefully controlled and limited, encompassing only a fraction of their entitled shares.

Notably, there were no sovereign guarantees tied to this loan, underscoring the cautious approach adopted. 

Moreover, the government projected the positive ripple effects of a strengthened naira resulting from this endeavour.

Anticipated benefits encompassed a reduction in fuel costs, a promising revelation for the populace. A stronger naira would translate into lower fuel expenses, effectively curbing potential price escalations. 

It is paramount to comprehend the fundamental mechanism underlying the repayment strategy for this substantial $3 billion loan.

The repayment would be orchestrated against a specified portion of proceeds from the prospective crude oil production, aligning with a strategic vision of the Tinubu administration.

This forward-thinking approach underscores a delicate balance between addressing immediate economic needs and fortifying future production capabilities, thus epitomizing astute financial foresight. 

 

 


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