‘AA+ by GCR, B+ from Fitch’ — rating agencies differ on Dangote Industries’ creditworthiness

GCR Ratings (GCR), an affiliate of Moody’s, has graded Dangote Industries Limited (DIL) with the national scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG) respectively.

However, the assessment of Fitch, a global rating agency, differs on the creditworthiness of the manufacturer.

In a recent report, GCR also affirmed the national scale long-term issue rating of AA+(NG) to each of Dangote Industries Funding Plc’s series 1 N10.5 billion tranche A and N177.1 billion tranche B bonds and series 2 N112.4 billion senior unsecured bond.

According to the agency, the outlook on the ratings has been revised from stable to evolving.

The rating firm, however, decried the impact of naira devaluation on the performance of DIL.

“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 agency said.

“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.

“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.

“We have maintained a positive peer comparison consideration for DIL underpinned by the importance of the refinery to the Nigerian economy.”

The rating agency further said it lowered the extent of support applicable under “this rating component because we expect the support factors to translate to substantive enhancements to the group’s business and financial profiles over the outlook period”. 

GCR, however, said DIL remains highly exposed to volatile energy cost dynamics and is reliant on the importation of gypsum for cement, raw sugar input, and crude oil for the refinery.

FITCH DOWNGRADES DIL OVER STABILITY TO REFINANCE DEBT

On the contrary, Fitch, a global rating agency, downgraded DIL’s long-term rating to ‘B+(nga)’ from ‘AA(nga)’.

Fitch also lowered the senior unsecured debt rating issued by Dangote Industries Funding Plc to ‘B+(nga)’ from ‘AA(nga)’– thereby placing the ratings on negative.

“The downgrade reflects significant deterioration in the group’s liquidity position following lower than expected disposal proceeds, operational and financial underperformance compared to our prior expectations, also affected by local currency devaluation, and lack of contracted backup funding to repay its significant debt facilities maturing on 31 August 2024,” Fitch said.

“We view the lack of DIL’s audited accounts for 2023 as a corporate governance issue.

“The RWN reflects uncertainty related to the group’s ability to refinance maturing debt.

“Lack of tangible steps to refinance or repay the maturing debt would lead to further downgrade while we do not expect a positive rating action until the company’s liquidity position improves substantially.”

The rating agency said key factors responsible for the downgrade are immediate refinancing risks, online refinery ramp-up in progress, foreign exchange mismatch eroding liquidity, and complex debt composition.

Other key drivers are low fertiliser utilisation and reduced cement profitability.

“DIL is a diversified conglomerate with a leading market share in building materials in Nigeria. We expect the fertilizer and oil refinery segments of the group to contribute 20% and 30% to consolidated EBITDA by 2024 and 2025,” Fitch added.

“DIL’s business profile is broadly comparable with diversified conglomerates such as Votorantim S.A. (VSA; BBB-/Positive) and Alfa S.A.B. de C.V. (Alfa; BBB-/Stable).”

Fitch also said DIL’s financial structure is weaker than peers’ “due to high refinancing risk and lumpy maturity profile in USD denominated debt”.