Dangote Refinery faces crude supply test ahead of $5bn IPO- Report

Nigeria’s Dangote Refinery is heading towards a potential $5 billion IPO in October, but investors are watching one major issue closely, whether the refinery can secure enough crude oil without hurting its profits. Initial Public Offering (IPO) is when a private company sells shares to the public for the first time to raise money. In Dangote’s case, the planned listing could raise about $5 billion to support the refinery’s expansion according to a Reuter report. The refinery, mainly owned by Africa’s richest man, Aliko Dangote, has recorded strong earnings in recent months as disruptions from the Iran war pushed up demand for fuel from other suppliers. But analysts say the refinery’s long-term growth could depend on its ability to get crude at competitive prices. Dangote plans to double the refinery’s capacity within three years, with part of the expansion expected to be funded through the IPO. “If Dangote’s only supplier of oil is Nigeria ... this does increase the risk of the refinery as an investment,” Rob Thummel, a senior portfolio manager at Tortoise Capital Management, said. The refinery can process up to 650,000 barrels of crude a day and has already tested production at 700,000 barrels per day. Although Nigeria is Africa’s largest oil producer, with output of about 1.6 million barrels per day, Dangote does not get all its crude locally. David Bird, Chief Executive of Dangote Refinery, told Reuters that imports currently account for about 30% to 40% of the refinery’s crude supply. This is partly because much of the crude controlled by the Nigerian National Petroleum Company Limited is committed to oil-backed loans and pre-export deals, leaving less available for Dangote. Here's how much a coconut seller in Accra earns on average Nigeria has become Dangote’s main source of crude this year, replacing declining supplies from the United States. However, the refinery has also bought crude from Libya, Angola, Ghana, Guyana and Cameroon. The challenge is not only finding crude but getting it at the right price. Analysts warn that expensive crude could raise the refinery’s operating costs, reduce profits and affect its value ahead of the IPO. Dangote has also complained that some Nigerian crude is priced too high because local producers use international oil prices such as Brent as a benchmark, even when the crude is supplied within Nigeria. Ghana’s economic recovery beats IMF expectations – Adrian Alter At the same time, importing crude from countries such as the US and Guyana exposes the refinery to dollar costs and additional shipping expenses. Nigerian authorities are looking at ways to improve access to local crude. One proposal is a crude swap system that could connect refiners directly with local producers and reduce delivery delays. For Dangote, its location on Nigeria’s coast gives the refinery an advantage because it can easily bring in crude from overseas if local supplies fall short. However, analysts say the cost of those imports remains a key risk as the refinery prepares for what could become Africa’s biggest IPO. DR/SA Ghana will not borrow simply because financing is available – Dr Ato Forson Source: www.ghanaweb.com
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