Amid ongoing face-off between Dangote Refinery and Nigerian oil and gas sector Regulatory agencies, concerns have emerged as international rating firm, Fitch Rating has downgraded Dangote Industries Limited, DIL to ‘B+(nga)’ from AA(nga) putting the company on Negative Watch.
Some of the concerning reasons advanced by the rating agency for the downgrade include lower-than-expected disposal proceeds, and operational and financial underperformance compared to earlier expectations.
The rating agency further explained that DIL was downgraded due to local currency devaluation, and lack of contracted backup funding to repay its significant debt facilities maturing on 31 August 2024.
More worrisome, Fitch Rating bemoaned the absence of DIL’s audited accounts for 2023 as a real corporate governance issue.
The international rating firm made these concerns known in a report released on Monday.
The report stated: “Fitch Ratings has downgraded Dangote Industries Limited (DIL) 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 the Rating Watch Negative (RWN). A full list of rating actions is below.
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“We view the lack of DIL’s audited accounts for 2023 as a corporate governance issue. The RWN reflects 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.”
It added that key drivers of the downgrade are: “Immediate Refinancing Risk: DIL has immediate debt servicing requirements related to the syndicated loan raised to finance the construction of Dangote Oil Refining Company (DORC). Further delays in meeting the funding requirements would significantly increase the likelihood of financial restructuring or default and lead to a further rating downgrade.
“Oil Refinery Ramp-up in Progress: DORC has a nominal production capacity of 650,000 barrels per day (bpd) of refined oil products, which will be sold in both the Nigerian domestic and international markets.
“During the 1H 2024, the refinery operated at around 50 percent capacity and produced between 325,000 bpd to 375,000 bpd, but the EBITDA contribution from DORC has been far below our previous projection as the facility is ramping up and optimizing production.
“We expect gradual improvement in EBITDA contribution from DORC going forward following the initiation of gasoline production in Q3 this year.”
The downgrade comes amid the crude oil supply challenge the 650,000 barrels per day Dangote Refinery has been battling.
By: Babajide Okeowo
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