Dangote to divest 12.75% refinery stake amid liquidity concerns, says Fitch

Business a.m.

Global credit rating agency, Fitch Ratings, has disclosed that the Dangote Group intends to sell off a 12.75 percent stake in Dangote Petroleum Refinery to address liquidity concerns. 

In a statement released recently, Fitch Ratings indicated that Dangote Group plans to utilise the funds generated from the sale of the 12.75 percent stake to repay a substantial portion of its syndicated loan that is due for repayment on August 31, 2024. This move comes after Dangote Group sold a 20 percent stake in Dangote Refinery to Nigeria National Petroleum Corporation (NNPC) in September 2021, in a deal valued at $2.76 billion.

 However, Aliko Dangote, the wealthiest man in Africa, stated in July 2024 that NNPC now holds a 7.2 percent stake in the Dangote Refinery. 

Fitch Ratings, in their analysis of the 2021 transaction, indicated that the agreement between the NNPC and Dangote Refinery Company (DORC) involved the purchase of a 7.25 percent stake in DORC’s project entity for $1 billion, with an option for NNPC to purchase the remaining 12.75 percent stake by June 2024.

Since the NNPC did not exercise the option to purchase the remaining stake by June 2024, Fitch Ratings indicated that the Dangote Group plans to sell a 12.75 percent stake in Dangote Refinery this year, as part of its efforts to improve liquidity and service its loan obligations. 

“The group intends to service its significant syndicated loan maturing in August 2024 from the equity divestment. However, timely divestment and meeting the imminent maturity is highly uncertain in our view,” Fitch stated.

 Fitch Ratings also revealed that as of 2023, Dangote Industry Limited reported consolidated liquidity of N1.4 trillion in readily available cash (unaudited) and an additional N400 billion in the first quarter of 2024 , noting that the company is currently not utilising any of the available capacity under its revolver facility. 

In another development, Fitch Ratings downgraded DIL’s long-term credit rating from ‘AA(nga)’ to ‘B+(nga)’ and reduced the senior unsecured debt rating issued by Dangote Industries Funding Plc from ‘AA(nga)’ to ‘B+(nga)’, placing the ratings on a negative outlook.

 The downgrade by Fitch Ratings reflects a significant deterioration in the liquidity position of Dangote Industries Limited, largely caused by lower than expected proceeds from asset disposals, underperformance of both operations and finances compared to Fitch’s previous expectations, and the negative effects of local currency devaluation. 

Fitch also pointed out that the group currently lacks contractually-secured backup funding for the significant debt facilities maturing on 31 August 2024, increasing the financial pressure on the company.