Moody’s Affirms Dangote Sugar Refinery’s Ratings Amid Nigeria’s Currency Challenges


Moody’s Ratings has affirmed the Caa1 corporate family rating (CFR) of Dangote Sugar Refinery Plc (DSR) and repositioned the national scale rating (NSR) to from, while adjusting the outlook to stable from positive. DSR, the largest sugar producer in Sub-Saharan Africa based in Nigeria, faces challenges due to Naira devaluation impacting its operations.

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The global rating agency cited the sharp devaluation of the Nigerian Naira against the US dollar over the past year as a primary reason for the rating adjustments. This currency depreciation has severely affected DSR’s business model, particularly its raw material import operations, leading to weakened liquidity and increased Naira-denominated letters of credit (LoC). These factors have adversely impacted DSR’s credit profile.

In June 2023, the Central Bank of Nigeria unified its foreign exchange rates, significantly devaluing the Naira from around 460 per USD to approximately 1,500 per USD by February 2024. This rapid devaluation has exacerbated DSR’s financial challenges.

To mitigate these currency headwinds, DSR has intensified its focus on the Backward Integration Plan for sugar production in Nigeria. By investing in local production capacity at its Numan and Nasarawa sugar plantations, DSR aims to capitalize on the higher profitability of locally produced sugar compared to imports.

Moody’s assessment of DSR includes positive factors such as government regulations supporting the sugar industry, Nigeria’s demographic trends, DSR’s market leadership in refined sugar, manageable debt levels excluding LoC, and a history of adequate operating margins despite cost increases.

However, the ratings also reflect DSR’s exposure to Nigeria’s high economic and regulatory risks, foreign currency exposure from imports, volatility in commodity prices, substantial reliance on interest-bearing letters of credit totaling NGN 420 billion, and weakened credit metrics due to operational challenges and foreign exchange losses.

Moody’s stable outlook anticipates DSR’s production volumes to recover to 2022 levels over the next 18 months. It assumes that the company’s existing letters of credit will be rolled over without increase, providing a stable operational backdrop for the near term.

In conclusion, Moody’s assessment underscores DSR’s strategic initiatives to navigate Nigeria’s economic uncertainties while focusing on sustainable growth within the local sugar production sector.

Adeniyi Ogunfowoke, The Naija247news
Adeniyi Ogunfowoke, The Naija247news
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