By Aduragbemi Omiyale
The ratings of three non-financial corporates in Nigeria have been downgraded by Moody’s Investors Service on the back of the weakening of the federal government’s credit profile.
The affected organisations are Seplat Energy Plc, Dangote Cement Plc, and IHS Holding Limited.
In a statement issued on Friday, the rating agency said it has also repositioned the national scale corporate family rating (CFR) of Dangote Cement to A3.ng from Aa3.ng to reflect the mapping of Global Scale Ratings to National Scale Ratings.
Moody’s noted that though the corporates have relatively prudent financial policies, adequate liquidity, moderate to low leverage and strong business profiles, they are still constrained by the foreign currency country ceiling because they are materially exposed to Nigeria’s economic, political, legal, fiscal and regulatory environment.
Seplat is less exposed to convertibility risk, given most of its revenue is paid in dollars. However, its export dollar oil revenue must be repatriated back into Nigeria within 90 days of receipt, after which Seplat can transfer these US dollar funds back into offshore bank accounts, the rating firm said.
It stated that to date, Seplat has had no restrictions imposed by the Central Bank of Nigeria (CBN), and the company targets 70 per cent of total cash balances in Dollars and 70 per cent of that in offshore accounts.
Seplat’s $650 million senior unsecured notes are due in 2026, and the company has a good liquidity profile supported by $305 million of cash on the balance sheet and full access to the $350 million undrawn revolving credit facility as of September 2022.
As for Dangote Cement, Moody’s said its high proportion of dollar debt in the capital structure exposes the company to currency convertibility risk.
It noted that while the cement firm continues to grow its dollar revenue through exports and repatriation of dollar cash flow from its other African operations, it still relies on the CBN for foreign exchange (FX), which remains restricted.
The company’s liquidity profile is adequate but is exposed to ongoing refinancing risks because of the large portion of short-term debt equal to N326 billion, representing 60 per cent of total debt as of June 30, 2022. It also benefits from strong cash flow generation, with cash balances of N194 billion as of June 30, 2022.
As for IHS, the renowned rating company said its downgrade also reflects exposure to currency convertibility risk, which over time will weaken the company’s liquidity position if it is unable, for a prolonged period, to upstream cash flow generated in Nigeria to the group level.
IHS earns around 67 per cent of its EBITDA from Nigeria, denominated in Naira, but its contracts are either dollar-linked or have Naira CPI pricing escalators that allow the company to pass through most of the cost inflation or currency depreciation it is exposed to.
“Nevertheless, the fact that revenues are invoiced in Naira exposes the company to Dollar shortages in the country and the resulting convertibility risk.
“IHS serves its dollar bonds through cash upstreamed to the group by its international operations, the largest one of which is in Nigeria,” it said.
Moody’s noted that during the six months to June 2022, IHS upstreamed $147 million of cash from Nigeria, in addition to regular upstreams from other operating companies.
It said liquidity remains good and is supported by a cash balance of around $500 million outside of Nigeria as well as a $270 million fully available liquidity facility, which Moody’s expects will provide the company with adequate liquidity for the next 2-3 years even in the case it was unable to upstream any cash flow from Nigeria over this timeframe.
Recall that last week, Moody’s downgraded Nigeria’s local currency country ceiling to B1 from Ba3 and the foreign currency country ceiling to B3 from B2.
Dipo Olowookere 
Adedapo Adesanya