GCR reaffirms Dangote Group’s national scale ratings at AA+(NG)/A1+(NG)

Business a.m.

GCR Ratings has reaffirmed Dangote Industries Limited (DIL)’s national scale long-term issuer rating of AA+(NG) and national scale short-term issuer rating of A1+(NG). The rating agency has also affirmed Dangote Industries Funding Plc’s Series 1 and 2 Bonds’ national scale long-term issue rating of AA+(NG). These bonds, worth a combined value of NGN300.4 billion, include the Series 1 NGN10.5 billion Tranche A, Series 1 N177, while the outlook on the ratings has been revised to Evolving from Stable previously.

According to GCR, the rating is based on the agency’s positive assessment of the company’s future earnings prospects.  The rating agency anticipates substantial growth in earnings following the commencement of operations at the new petrochemical refinery and expects the company’s other businesses to generate robust earnings, leading to a solid financial performance overall.

Although GCR Ratings has affirmed the national scale issuer ratings and national scale issue ratings of Dangote Industries Limited and Dangote Industries Funding Plc, the agency expressed concern over the negative impact of currency devaluation on DIL’s profitability and financial position. It noted that the company’s significant foreign debt exposure has made it particularly vulnerable to the adverse effects of currency devaluation, leading to profitability concerns and potential financial strain.

GCR Ratings noted that the Dangote Group’s commencement of refining operations in February 2024 adds to the group’s well-diversified business profile, further strengthening its position in the market. The refining operations, which include the production of diesel, Naphtha, heavy fuel oil, and aviation fuel, complement the existing diversified businesses of the group, and together, they provide a solid foundation for the group’s long-term success.

“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 leadership in their respective sectors, underpinned by the above-peer production capacities and favourable demographics,” they noted.

GCR Ratings acknowledged the strategic importance of Dangote Industries Limited’s (DIL) refinery to the Nigerian economy, maintaining a positive peer comparison consideration for the company. 

However, they have reduced the degree of support that this favourable consideration provides in the ratings assessment because they expect the positive factors to manifest themselves in tangible improvements to DIL’s business and financial profiles over the medium term, thereby negating the need for a significant uplift from the peer comparison consideration.

GCR Ratings noted that Dangote Industries Limited sponsored a special purpose vehicle, Dangote Industries Funding Plc, to issue N300 billion in Series 1 (Tranches A and B) and Series 2 Senior Unsecured Bonds in 2022. These bonds, which rank pari passu with all other senior unsecured creditors of the group, represent senior unsecured debt issued by DIL, ensuring that bondholders have equal rights to all other senior creditors of DIL in the event of a default.

In their report, GCR Ratings indicated that the Series 1 and 2 Senior Unsecured Bonds issued by Dangote Industries Funding Plc are directly linked to Dangote Industries Limited’s corporate rating, with any changes in DIL’s long-term corporate rating likely to impact the Bonds’ ratings. 

Based on a review of the draft trustees’ bond performance report dated 24 May 2024, the agency noted that all coupon payments have been made on time, without any breaches to any covenants or pledges outlined in the trust deeds.