American credit rating agency, Fitch, has announced it downgraded Dangote Industries Limited’s (DIL) credit rating to B+ and put it on ratings watch negative, citing concerns about its liquidity and ability to raise money.
Dangote Industries, owners of Africa’s largest oil refinery, Dangote Cement, amongst others, is facing a myriad of negative local policy decisions and stiff competition.
“The downgrade reflects significant deterioration in the group’s liquidity position,” Fitch said, adding that the group had underperformed its operational and financial expectations and was also hit by devaluations to the naira currency.
“We do not expect a positive rating action until the company’s liquidity position improves substantially.”
Nigeria’s currency devaluation in 2023, which sent the naira to record lows, led to a 2.7 trillion naira ($1.74 billion) foreign exchange loss for Dangote last year, Fitch said. Dangote faces a “mismatch” between dollar-denominated debt and domestic revenue in naira, the ratings agency said.
The company’s oil refinery operated at about 50% capacity in the first half of the year, at 325,000-375,000 bpd, Fitch said, while Dangote’s fertilizer business was hindered by inadequate gas supply.
Fitch said it expects Dangote’s margins in cement to drop further this year, dented by a limited ability to pass on higher costs to consumers, while demand remains soft.
Dangote Refinery Looking to Sell 12.7 Percent Stake.
The Dangote Refinery is also planning to sell a 12.7 per cent stake in 2024 for loan servicing, Fitch said.
The credit rating agency noted that the Nigerian National Petroleum Company Limited (NNPCL) had earlier planned to acquire a 20 per cent stake in the refinery. However, the decision of the national oil firm not to exercise its option of acquiring an additional 12.75 per cent as of June 2024 may impact the group’s ability to service loans.
“Since the option has not been exercised, the group plans to divest a 12.75 per cent stake in DORC in 2024.
“The group intends to service its significant syndicated loan maturing in August 2024 from the equity divestment. However, timely divestment and meeting the imminent maturity are highly uncertain in our view,” Fitch said.
The news has also been confirmed by Aliko Dangote, the chairman of Dangote group, who said “The agreement was actually 20 per cent which we had with NNPC, and they did not pay the balance of the money up till last year; then we gave them another extension up till June (2024), and they said that they would remain where they have already paid, which is 7.2 per cent. So NNPC owns only 7.2 per cent, not 20 per cent.”
NNPC confirmed this, saying it decided not to invest further in the refinery.
“NNPC Limited periodically assesses its investment portfolio to ensure alignment with the company’s strategic goals.
“The decision to cap its equity participation at the paid-up sum was made and communicated to Dangote Refinery several months ago,” the NNPC said in a statement by its spokesperson, Olufemi Soneye.
