Fitch Rates Dangote Industries ‘AA’, Says Outlook Stable

The Dangote Cement Plc logo stands on a barrier at the under-construction Dangote Industries Ltd. oil refinery and fertilizer plant site in the Ibeju Lekki district, outside of Lagos, Nigeria, on Thursday, July 5, 2018. The $10 billion refinery, set to be one of the worlds largest and process 650,000 barrels of crude a day, should be near full capacity by mid-2020, Devakumar Edwin, group executive director at Dangote Industries said in an interview. Photographer: Tom Saater/Bloomberg via Getty Images

Fitch Ratings has assigned Dangote Industries Limited (DIL), a Nigerian national long-term rating of ‘AA(nga)’ with a stable outlook. The group of companies was founded by billionaire businessman, Aliko Dangote.

Some of the companies under DIL include the Dangote Refinery And Petrochemical Plant, Dangote Fertiliser Limited (DFL), Dangote Sugar, Dangote Salt, Port Operations, Dangote Cement, packaging among others

On key rating drivers, it stated that DIL generates majority of its revenue from the domestic market and borrows in both Nigerian naira from local banks and in US dollars from international markets.

Fitch said that cement remains a significant contributor to DIL’s consolidated profile as the company is supported by large-scale operations in Nigeria and is pan-African.

In 2020 alone, it said that the contribution of the cement company to Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) stood at 93 per cent, noting that it is forecast that the share from that business line will remain high until when contributions from the fertiliser business increases.

“The cement business recorded significant recovery in sales volume due to increase in prices and demand across DCP’s main markets. Revenues rose 34 per cent y-o-y in 2021 on growth in Nigeria and pan-Africa, despite volatility in landing cost of cement and clinker,” the report stated.

Another positive factor for the rating, according to Fitch, was that DIL’s urea plant, has now overcome its compressor issues as well as regulatory approvals, which delayed its take-off.

“The gas pressure has recovered in 2022, and management has conservatively assumed utilisation rates for respective lines to increase to 55 per cent and 50 per cent in 2022, 65 per cent in 2023 and 82 per cent by 2025,” it noted.

It stated that the Dangote refinery project was still on track to be completed by 2023, but requires additional $1.1 billion capex in 2022 to be partly funded by a new bond.

“Considering the importance of the refinery’s cash flow contribution to the company’s deleveraging capacity, the timely completion of the project is a key driver of our rating, and only limited delays or cost overruns may be tolerated in the current rating, ” Fitch added.

According to the document, Fitch said that a key assumption was that once the fertiliser and refinery projects start contributing to EBITDA, their associated cash generation will be directed towards deleveraging (settling of debts).

While the refinery project is expected to sustain strong margins and yield solid cash generation, adding diversification to DIL’s profile and allowing rapid deleveraging, it stated that once operational, it is expected that the project will contribute around $1 billion to earnings annually when ramped up from 2024.

However, it stated that the Dangote Industries Limited has a complex group structure with a large amount of related-party transactions, with a negative effect on operational and financial transparency.

“The group structure may be further complicated by the Nigerian National Petroleum Corporation’s 20 per cent stake in the refinery project. We also view the dominance of Aliko Dangote, as CEO (Chief Executive Officer) and the main shareholder, in operations as an additional risk,” it said.