Dangote refinery
GCR Ratings (GCR) affirmed the national scale long-term and short-term issuer ratings of AA+ (NG) and A1+ (NG) respectively accorded to Dangote Industries Limited (DIL).
Concurrently, GCR also affirmed the national scale long-term issue rating of AA+ (NG) accorded 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 n Senior Unsecured Bond, the rating note stated.
The emerging market rating agency added that the outlook on the ratings has been revised to evolving from stable accorded to it previously.
The rating note stated that the evolving outlook reflects the equal likelihood for ratings upgrade or downgrade in the near term and is anchored on the current ratings sensitivities to earnings performance as well as debt and liquidity management.
GCR explained that DIL’s 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, 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 rating note added.
GCR stated that 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, the rating firm said it expects 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”.
However, GCR Rating stated 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.
Although the core earnings remain strong, net profit was deeply impacted by foreign exchange loss of about N3 trillion or USD3.3 billion and high finance cost (N544 billion) in financial year 2023 which ended 31 December 2023.
GCR ratings expects the group revenue to double to N6 trillion in 2024 and further by about 60% in 2025, driven by additional income streams from the refinery.
Analysts also said they expect EBITDA margin to reduce to the 22%-27% range in 2024 and 2025 reflecting the inherently lower profitability attributable to refining operations, but the absolute earnings should increase materially.
“We also expect the steep foreign exchange loss to be moderated by gains from export sales over the next 18 months”.
