Senegal has secured €650mn in undisclosed borrowing through complex financial instruments, raising concerns over transparency and creditor hierarchy. The deals come as the country seeks to renegotiate an IMF bailout and manage mounting debt pressures….reports Asian Lite News
Senegal has borrowed hundreds of millions of dollars from international institutions that it has not publicly disclosed. The West African nation, which is seeking to avoid default, tapped €650mn from development lenders including Africa Finance Corporation and First Abu Dhabi Bank last year in borrowings that gave them privileges over existing bondholders.
The funding was secured alongside newly issued domestic sovereign bonds using derivatives known as total return swaps, which are increasingly popular with countries close to default and can give lenders unusual seniority over other creditors.
The deals come as Senegal’s finances face mounting strain. The state auditor confirmed last year that the country had at least $7bn in hidden borrowing under the previous government, pushing total debt to more than $40bn, or over 130 per cent of GDP.
Senegal’s finance ministry and its advisory team, Global Sovereign Advisory, did not respond to requests for comment. The country is also seeking to renegotiate a $1.8bn IMF bailout, which was halted after the discovery of the hidden debts.
The IMF said it was aware that Senegal had agreed several total return swaps with lenders, though the full terms have not been shared. It added that it would normally expect authorities to disclose financial terms for debt financing, particularly in the context of debt sustainability assessments.
Under total return swaps, lenders effectively gain exposure to a country’s bonds while receiving payments linked to interest and principal. These instruments can provide governments with access to liquidity when traditional capital markets are closed, but they can also complicate restructurings and give participating lenders priority over other creditors.
Last year, Senegal struck such arrangements to secure financing when access to international bond markets was limited. The country raised €350mn in May through swaps, receiving an initial €105mn in financing and transferring title to the equivalent of €150mn in CFA franc bonds and interest payments of 3.5 to 4 per cent over a floating rate, according to the documents.
In June, a further three-year swap with First Abu Dhabi Bank allowed Senegal to borrow €300mn by giving the lender the equivalent of about €400mn in bonds and paying a floating rate plus about 5 per cent.
Both loans are due to mature in 2028. If Senegal defaults before then, the arrangements allow the lenders to take control of the bonds that underpin the swaps, potentially placing them ahead of other creditors.
The emergence of these deals has added to concerns about Senegal’s debt transparency. The IMF paused its programme after the earlier revelations about undisclosed borrowing, and access to international markets has been constrained.
Senegal’s total exposure to such swap arrangements is not fully known. Bank of America analysts estimated in December that the country may have borrowed up to $1bn using swaps last year.
The documentation for the Africa Finance Corporation deal refers to a similar arrangement involving Société Générale and allows the lender to demand repayment if Senegal defaults on that debt.
Bondholders have expressed concern about the lack of disclosure. Some investors said the total amount of hidden borrowing may be higher than reported, noting that details of the swaps have not been made public.
The IMF has indicated that it could seek to classify total return swaps as part of Senegal’s external debt in future restructuring discussions. It said such considerations would be central to its debt sustainability analysis and decisions on any revised programme.
Senegal has been attempting to stabilise its finances while maintaining access to funding. However, the use of complex instruments and the absence of full disclosure risk complicating negotiations with creditors and international institutions.
The government has not publicly detailed the terms of the swap agreements, and it remains unclear how these obligations will be treated in any broader debt restructuring.
