• Thursday, July 18, 2024
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Dangote Cement awash with cash, thanks to N45 billion commercial paper issuance

Dangote Cement splashes N50m worth of gifts on customers in Edo

Dangote Cement Plc has tapped the Nigeria debt market to raise capital so as to boost its operating liquidity or cash levels and reduce its debts, giving the largest producer of Cement locally the financial strength to meet its day to operations. 

The company took advantage of receding bond yields to issue N45 billion commercial paper, which is part of a N150 million programme at an implied yield of 7.75 percent. 

The capital injection means the cement maker will have more cash or liquidity to pay suppliers so as to make up for customers owing it (debtors).

Investors pay attention to working capital management because it shows how well a company is able to meet its obligations to suppliers of raw materials and machinery while effectively collecting money owned to it by debtors or receivables.  

The capital will help the company mitigate the problem of being out of cash. It will ensure that the cement maker never runs out of inventories. 

Dangote Cement current asset of N355.16 billion as at September 2019, exceeds current liabilities of N269.68 billion, to give a net working capital of N85.16 billion in the period under review. This means it is liquid and it has the cash to run operations. 

Because the current yield of 7.75 percent is lower than the previous coupon rate of between 11 percent and 12 percent, there will be a reduction in the cement makers finance costs, which further adds impetus to profit. 

As at September 2019, Dangote Cement’s debt/EBITDA, net debt/EBITDA and gearing ratio stood at 0.98x, 0.75x and 0.34x respectively, reflecting the strong cash generation of the group as well as solid capacity to service its liabilities.

Gearing ratios measures the level of debt in the balance sheet of a company, the lower the better. 

Assuming the offer is completely subscribed and allotted, which is expected by analysts, debt/EBITDA, net debt/EBITDA and gearing ratios could print higher at 1.09x, 0.86x and 0.41x respectively.

Dangote Cement shares are cheap and attractive as it has a price to earnings ratio of 6.17 times, this compares with 7.06 times for the Nigerian Stock Exchange (NSE) All Share Index (ASI). 

“We expect investors to bid aggressively for the offer given Dangcem’s strong credit rating and the ample financial system liquidity. More interest could be seen on the longer-dated series on account of its more attractive spread,” said analysts at Chapel Hill Denham Limited.  

“We note that the spreads across both series are significantly lower than the previous issuances in July,” said Ibrahim. 

Activity in Nigeria’s corporate debt market seems to be ending the year on a strong note, thanks to the CBN’s liquidity easing policy which has buoyed demand for corporate debt securities and encouraged corporates to tap the market for cheaper working and expansion capital.

 

Eat ‘N’ Go Limited, a leading restaurant group behind the Domino’s Pizza, Cold Stone Creamery, and Pinkberry brands in Nigeria, launched  a  double-tranche  offering  (5-year  and  7-year)  to raise N10 billion under a N15 billion issuance programme.

The offer is expected to close on Tuesday 10 December 2019 as the issuer is looking to price the 5-year bond at an indicative coupon of 13.50 percent –13.75 percent, and the 7-year bond at a range of 14 percent –14.25 percent.

Flour Mills Nigeria Plc, the largest miller by market capitalization, plans to issue N5 billion commercial paper at 8.87 percent and 9.50 percent under a N100 billion programme as it seeks to reduce debt and bolster earnings.