Afrexim taps traders for $3bn loan to Nigerian oil company

Reuters/George Esiri

African Export–Import Bank (Afrexim Bank) is tapping oil traders to finance a $3 billion loan to Nigeria’s state oil company that is central to the country’s efforts to support the naira, three sources told Reuters.

The currency hit an all-time low of 1,000 to the dollar on the black market on Tuesday.

Afrexim approached traders in recent weeks seeking their interest in funding the oil-backed loan to state oil company NNPC Limited, the sources said. It is working to craft terms to offer to the trading houses.

“There is a lot of interest, but they need to see terms,” one oil executive close to the talks told Reuters. The executive, who could not be named because he was not authorized to speak publicly on the issue, added that oil prices climbing past $90 per barrel would help drive interest.

An NNPC spokesman did not respond to a request for comment. Afrexim did not immediately comment.

During his confirmation hearing on Tuesday, incoming central bank chief Olayemi Cardoso said clearing unsettled foreign exchange obligations to local lenders, which could be as high as $7 billion, was his top priority.

The backlog is limiting the availability of dollars on the official market, forcing businesses and individuals to seek them on the black market.

Traders who put up cash would be repaid in physical cargoes of oil. The bank is working to determine how much oil to offer those traders in exchange for the financing, one of the sources said.

Shortly after taking office in May, President Bola Tinubu announced long-sought reforms that allowed the official naira rate to fall versus the dollar and fuel prices to roughly triple. In June, the naira was close to the black market level, but the gap has widened.

Tinubu also allowed pump prices to more than triple, which cut fuel smuggling and relieved pressure on state oil company NNPC to import petrol.

But NNPC is still using oil cargoes to repay some of the oil trading firms that had contracts to supply gasoline in exchange for crude, limiting its immediate access to oil.