. As GCR affirms it AA+(NG)/ A1+(NG)
By Stanley Onyeka, Lagos
Fitch Ratings has 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.
DIL operates what will be Africa’s largest oil refinery once fully operational, a 650,000 barrel per day facility in Nigeria according to Reuters. It also controls Dangote Cement.
“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 N2.7 trillion ($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 fertiliser 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.
The downgrade reflects significant deterioration in the group’s liquidity position. We do not expect a positive rating action until the company’s liquidity position improves substantially.
GCR rating
The Fitch rating comes as GCR Ratings affirmed the national scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG) respectively accorded to Dangote Industries Limited (DIL).
A statement by DIL said GCR in its recent report also affirmed the national scale long-term issue rating of AA+(NG) accorded to each of Dangote Industries Funding Plc’s Series 1 NGN10.5Bn Tranche A and NGN177.1Bn Tranche B Bonds and Series 2 NGN112.4Bn Senior Unsecured Bond. The outlook on the ratings has been revised to Evolving from Stable previously.
It quoted the rating firm as saying: “the ratings were affirmed on the prospects of significant growth in earnings following the commencement of operations at the new petrochemical refinery and robust earnings expectation from the other businesses.”
The however decried the impact of naira devaluation on DIL performance, stating that, “the ratings are constrained by the adverse impact of the currency devaluation on the profitability and financial position of the group, given its significant foreign debt exposure.”
GCR in recognition of the potential of the Dangote Group added, “the group’s business profile is bolstered by the commencement of refining operations in February 2024 (with the production of diesel, Naphtha, heavy fuel oil, and aviation fuel), which now complements the already well-diversified group businesses.
Accordingly, we expect the group’s business fundamentals to become increasingly tilted towards oil refining, given its size as the largest refinery in Africa and Europe. We also expect strong export sales potential given the recent debut exports of refined oil to Europe.
“The non-oil businesses continue to demonstrate strong earnings generating capacity and market leaderships in their respective sectors, underpinned by the above-peer production capacities and favourable demographics.”
It concluded by noting that “the group remains highly exposed to volatile energy cost dynamics and is reliant on importation of gypsum for cement, raw sugar input, and crude oil for the refinery.”
