GCR affirms Dangote Industries’ AA+ positive ratings

GCR Ratings has affirmed Dangote Industries Limited with national-scale long-term and short-term issuer ratings of AA+ and A1+, respectively.

In its report on Tuesday, GCR also affirmed the national scale long-term issue rating of AA+(NG) for each of Dangote Industries Funding Plc’s Series 1 NGN10.5bn Tranche A and NGN177.1bn Tranche B Bonds, as well as the Series 2 NGN112.4bn Senior Unsecured Bond.

GCR said the outlook on these ratings has been revised to Evolving from Stable.

“The ratings were affirmed on the prospects of significant growth in earnings following the commencement of operations at the new petrochemical refinery and robust earnings expectation from the other businesses,” it said.

The rating agency highlighted the impact of naira devaluation on Dangote Industries’ performance, stating, “the ratings are constrained by the adverse impact of the currency devaluation on the profitability and financial position of the group, given its significant foreign debt exposure.”

Recognising the potential of the Dangote Group, GCR noted, “The group’s business profile is bolstered by the commencement of refining operations in February 2024 (with the production of diesel, naphtha, heavy fuel oil, and aviation fuel), which now complements the already well-diversified group businesses.

“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 leaderships in their respective sectors, underpinned by the above-peer production capacities and favourable demographics.

“We have maintained a positive peer comparison consideration for DIL underpinned by the importance of the refinery to the Nigerian economy. However, we have lowered the extent of support applicable under this rating component because we expect the support factors to translate to substantive enhancements to the group’s business and financial profiles over the outlook period. In 2022, DIL raised a cumulative NGN300Bn in Series 1 (Tranches A and B) and Series 2 Senior Unsecured Bonds issued by its sponsored special purpose vehicle, Dangote Industries Funding Plc. Being senior unsecured debt sponsored by DIL, the Series 1 Tranches A and B Bonds and the Series 2 Bond rank pari passu with all other senior unsecured creditors of the group.

“Therefore, the Bonds bear the same national scale long-term rating as that accorded to DIL and any change in DIL’s long-term corporate rating would impact the Bonds ratings. We have reviewed the draft trustees’ bond performance report dated 24 May 2024 and note that the coupons have been paid as and when due and there were no breaches to any covenants and pledges in the trust deeds.

“However, the group remains highly exposed to volatile energy cost dynamics and is reliant on importation of gypsum for cement, raw sugar input, and crude oil for the refinery.”