Fitch Ratings has downgraded Dangote Industries Limited due to the significant deterioration in the group’s liquidity position following lower-than-expected disposal proceeds, operational and financial underperformance compared to our prior expectations.
The ratings firm stated this in a report on August 5, 2024, where it stated that the downgrade was affected by local currency devaluation, and Dangote Industries Limited’s lack of contracted backup funding to repay its significant debt facilities maturing on 31 August 2024.
“Fitch Ratings has downgraded Dangote Industries Limited National Long-Term Rating to ‘B+(nga)’ from ‘AA(nga)’ and senior unsecured debt rating issued by Dangote Industries Funding Plc to ‘B+(nga)’ from ‘AA(nga)’. Fitch has simultaneously placed the ratings on Rating Watch Negative,” it said.
Fitch Ratings stated that it has placed Dangote Industries Limited on Rating Watch Negative due to the uncertainty related to the group’s ability to refinance maturing debt.
“Lack of tangible steps to refinance or repay the maturing debt would lead to further downgrade while we do not expect a positive rating action until the company’s liquidity position improves substantially,” Fitch said.
It said Dangote Industries Limited has immediate debt servicing requirements related to the syndicated loan raised to finance the construction of Dangote Oil Refining Company. “Further delays in meeting the funding requirements would significantly increase the likelihood of financial restructuring or default and lead to further rating downgrade.
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“During the first half of 2024 the refinery operated at around 50 percent capacity and produced between 325,000 bpd to 375,000 bpd, but the EBITDA contribution from Dangote Oil Refining Company has been far below our previous projection as the facility is ramping-up and optimizing production,” Fitch said.
Fitch Ratings expects gradual improvement in the EBITDA contribution from Dangote Oil Refining Company going forward following the initiation of gasoline production in Q3 this year.
It stated that major currency devaluation in 2023, caused the group to record a significant FX loss of N2.7 trillion in 2023 as the company faces a mismatch between USD-denominated debt and domestic revenues.
“We expect devaluation to continue at a higher pace in 2024,” Fitch Rating stated.
Fitch said the company has raised senior unsecured debt amounting to N350 billion with long-dated maturities in 2029 and 2032 to finance capex requirements.
“We expect Dangote Industries Limited’s EBITDA margins in cement production to drop further in 2024 following softer retail demand for cement particularly in the Nigerian market and limited ability to pass on increased raw material cost to consumers,” it said.
Fitch Ratings stated that refinancing or repayment of the upcoming maturities and a significant improvement in the liquidity position can lead to positive rating for Dangote Industries Limited while lack of tangible steps to refinance upcoming maturities or steps towards default-like financial restructuring or payment default can lead to negative ratings action.
