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Total return swaps used by some governments raise investor concerns
Bloomberg reports Senegal raised about $1.24 billion in 2024 through TRS amid an IMF programme suspension after undisclosed borrowing of around $7 billion was found.
Governments including Senegal, Angola and Nigeria are increasingly using total return swaps, or TRS, to raise funding from banks, but the structures are raising concerns among sovereign bondholders about how creditors could be treated in future debt restructurings, according to a report by Bloomberg.
TRS, which are more commonly used by hedge funds to gain exposure without owning assets directly, can let governments pledge their own bonds as collateral for bank financing. The deals may provide access to cash, but falling bond prices can trigger additional collateral requirements when sovereign finances are already under pressure, and the arrangements can be difficult for investors to evaluate because they are classified as derivatives rather than conventional loans.
Senegal is described as a key test case. After the discovery of around $7 billion of previously unreported borrowing in 2024 and the suspension of its IMF programme, the country raised about $1.24 billion through TRS with lenders including Africa Finance Corp., Société Générale and First Abu Dhabi Bank.