Dangote Industries Retains Top Credit Rating Amidst Challenges
By Patience Ikpeme
GCR Ratings (GCR) has upheld the national scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG) respectively for Dangote Industries Limited (DIL).
Additionally, GCR has affirmed the national scale long-term issue rating of AA+(NG) for each of Dangote Industries Funding Plc’s Series 1 NGN10.5 billion Tranche A and NGN177.1 billion Tranche B Bonds, as well as the Series 2 NGN112.4 billion Senior Unsecured Bond.
The outlook on these ratings has been revised from Stable to Evolving.
In its recent report, GCR cited the prospects of significant earnings growth for DIL, driven by the commencement of operations at the new petrochemical refinery and robust earnings expectations from other business segments. The rating agency noted that, “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.”
However, GCR expressed concerns about the impact of naira devaluation on DIL’s performance. The report stated, “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.”
Despite these concerns, GCR highlighted the potential of the Dangote Group, noting that the commencement of refining operations in February 2024—producing diesel, naphtha, heavy fuel oil, and aviation fuel—enhances the group’s business profile. GCR added, “the group’s business profile is bolstered by the commencement of refining operations in February 2024 which now complements the already well-diversified group businesses.”
GCR expects the group’s business fundamentals to increasingly tilt towards oil refining, given the size of its refinery, the largest in Africa and Europe. The agency also anticipates strong export sales potential, following the recent debut exports of refined oil to Europe. Furthermore, GCR praised the strong earnings generating capacity and market leadership of DIL’s non-oil businesses, which benefit from above-peer production capacities and favorable demographics.
“We have maintained a positive peer comparison consideration for DIL underpinned by the importance of the refinery to the Nigerian economy,” GCR stated. However, the agency has adjusted the level of support applicable under this rating component, expecting the support factors to translate to substantive enhancements to DIL’s business and financial profiles over the outlook period.
In 2022, DIL raised a cumulative NGN300 billion in Series 1 (Tranches A and B) and Series 2 Senior Unsecured Bonds through its sponsored special purpose vehicle, Dangote Industries Funding Plc. Being senior unsecured debt sponsored by DIL, these bonds rank pari passu with all other senior unsecured creditors of the group. Consequently, the bonds carry the same national scale long-term rating as DIL, and any changes in DIL’s long-term corporate rating would impact the bonds’ ratings.
GCR reviewed the draft trustees’ bond performance report dated May 24, 2024, noting that coupons have been paid as due and there were no breaches to any covenants and pledges in the trust deeds. Nonetheless, the group remains highly exposed to volatile energy cost dynamics and relies on the importation of gypsum for cement, raw sugar input, and crude oil for the refinery.
Overall, while GCR recognizes the considerable potential and diversified strengths of Dangote Industries Limited, it remains cautious about the challenges posed by currency devaluation and reliance on imported raw materials. The evolving outlook reflects both the positive developments in DIL’s operational capacity and the uncertainties inherent in the current
