Economy
Moody’s Downgrades Dangote Cement Rating to B1
By Modupe Gbadeyanka
The corporate family rating (CFR) of Dangote Cement Plc has been downgraded by Moody’s Investors Service to B1 from Ba3.
A statement issued by Moody’s said Dangote Cement’s probability of default rating was downgraded to B1-PD from Ba3-PD, but said the firm’s national scale rating (NSR) remains unaffected at Aaa.ng with outlook on the ratings still stable.
Explaining the reason it downgraded the cement producer’s ratings, Moody’s said it was as a result of the downgrade of Nigeria’s rating to B2 from B1.
“We have downgraded Dangote Cement because it is not totally immune from Nigeria’s continuing economic challenges which the country’s government has been slow in responding to,” stated Douglas Rowlings, Vice President, Senior Analyst and lead analyst for Dangote Cement Plc at Moody’s.
“But Dangote Cement’s rating is one notch above the Nigerian sovereign’s to reflect its resilient and strong credit profile and management’s continuing success in navigating Nigeria’s tough operating environment,” added Mr Rowlings.
Dangote Cement’s B1 CFR, one notch above the Government of Nigeria’s B2 rating considers the company’s stronger intrinsic credit quality balanced against the meaningful linkage and limited ability to withstand stress at the Nigerian sovereign or macroeconomic level.
The CFR also reflects the track record of demonstrated financial support from a larger and more diversified parent, Dangote Industries Limited (DIL).
This affords additional parent level financial strength by being part of a broader diversified group of companies under the DIL umbrella, the rating agency said.
Dangote Cement has a very strong credit profile, and would likely be rated higher without its linkage with Nigeria, in part because of its leverage which registered 1.3x gross debt/EBITDA for the last 12 months ended September 30, 2017, Moody’s said in a statement issued on November 10, 2017.
This is significantly low relative to global peers, even those rated investment grade. The strong standalone profile also incorporates high operating margins trending above 50%; high interest coverage as measured by EBIT/interest expense trending above 8x over the next 18 months; and conservative funding policies with debt funding matched to the currency of cash flow generation and prudent financial policies which will ensure sustenance of strong credit metrics through operating and project build cycles, it added.
The statement noted that Dangote’s sales and margins continue to benefit from the ongoing activity in the Nigerian economy.
Nevertheless Dangote remains at this stage strongly linked to Nigeria and its economy, with 89 percent of its EBITDA anchored in the country for the 9 months ended September 30, 2017.
Its investments in new plant capacity in other sub Saharan countries will provide more diversification in future but it will take several years before there is a meaningful diversification of revenue, profits and cashflows away from the Nigerian economy. Pan-African volumes expected to reach 40% of total sales volumes by 2020.
The ratings also factor in the relatively small scale level of cement production when compared to global peers along with production of 23.6 million tonnes (mt) for the Financial Year Ended (FYE) 31 December 2016; and a concentration of production in Nigeria, representing around 68% of revenues for the FYE 2016.
DCP’s ratings are further predicated upon a continuing growing cement market share of 65% in Nigeria as Africa’s most populous country and its largest economy where GDP is expected to reset to growth levels of around 2.5% in 2017 despite the ensuing low oil price environment; protected domestic production in the various African markets in which it operates, given on-going restrictions on imports; and competitive advantage brought about by an intention to always be the lowest cost cement producer in the markets where it operates, with a differentiated offering in Nigeria through access to low cost coal as an energy resource and a comprehensive fleet network, the statement further said.
Under Moody’s forecasts DCP’s liquidity profile is sufficient to meet the company’s cash needs over the next 12 months. Moody’s estimates that funds from operations generation of N641 billion ($1.8 billion) for the next 12 months and an unrestricted cash balance of N130 billion ($361 million) as of September 30, 2017 are sufficient to cover maintenance capex of N11 billion ($31 million), planned expansion capex of N198 billion ($550 million) and dividends of N254 billion ($705 million). Uncommitted expansion capex will require external funding.
This will be supported by DCP’s four committed trade finance facilities for a total amount of N130 billion ($401 million) to be used to cover import payments via issuance of letters of credit.
Additionally, DCP’s liquidity benefits from proven ongoing support from DIL. Although Moody’s does not expect that DCP would require liquidity support from DIL, the rating agency expects that this would be forthcoming if ever needed.
It stated that the stable ratings outlook reflects Moody’s expectation that DCP will continue to maximize output from existing plants outside Nigeria, while continuing to observe conservative financial policies. At the same time, the stable outlook assumes the ability to refinance maturing debt predominantly due to DIL through a Nigerian naira denominated bond issuance.
Moody’s said a downgrade of DCP’s rating would result if there was a move away from its conservative financial policies most notably its matching of the currency of its underlying cash flow generation to that of its debt commitments.
Downward pressure on the ratings could also arise should liquidity become pressured; adjusted debt to EBITDA trend above 4x; adjusted EBIT to interest expense trend below 2.5x; or operating margins fall below 20% on a sustained basis.
Any downward momentum on the Federal Government of Nigeria’s rating could also exert pressure on DCP’s ratings.
Similarly, the introduction of special taxes, levies or other punitive measures in respect of profits or cashflow by the government of Nigeria could put downward pressure on the ratings and/or outlook.
Upward pressure on the ratings is constrained by the Government of Nigeria’s local currency issuer rating of B2 as Moody’s considers a strong interlinkage with DCP’s ratings due to the high revenue contribution from its domestic operations which contains the company to be rated one rating level above the sovereign.
By Dipo Olowookere
The first trading session of the week on the floor of the Nigerian Exchange (NGX) Limited ended in the green territory on Monday, with a 1.20 per cent rise.
This was buoyed by the gains recorded by Airtel Africa and other equities, according to analysis of data harvested from the Customs Street yesterday.
During the trading day, the consumer goods index grew by 0.76 per cent, enough to offset the losses recorded by the other sectors.
The insurance counter shrank by 1.64 per cent, the banking space lost 0.24 per cent, the energy sector contracted by 0.09 per cent, and the industrial goods segment retreated by 0.05 per cent.
When trading activities ended for the day, the All-Share Index (ASI) was up by 2,956.15 points to 248,529.75 points from 245,573.60 points, and the market capitalisation gained N1.909 trillion to finish at N160.422 trillion compared with the previous session’s N158.513 trillion.
Fortis Global Insurance expanded by 10.00 per cent to N2.86, Chams surged by 9.80 per cent to N4.48, NAHCO jumped by 9.29 per cent to N153.00, Airtel Africa soared by 8.59 per cent to N6,300.00, and Sovereign Trust Insurance rose by 6.59 per cent to N1.78.
Conversely, AVA Capital shed 10.00 per cent to N9.90, Ecobank decreased by 9.92 per cent to N64.95, Caverton crashed by 9.09 per cent to N5.00, Ikeja Hotel slipped by 8.41 per cent to N43.00, and FTN Cocoa dropped 8.37 per cent to trade at N8.10.
A total of 23 equities were on the gainers’ chart yesterday, while 37 equities ended on the losers’ table, indicating a negative market breadth index and weak investor sentiment.
As for the activity log, the trading volume remained elevated, though lower than the preceding session, as it receded by 26.67 per cent to 1.1 billion units from 1.5 billion units. The trading value, however, increased by 1.12 per cent to N27.0 billion from N26.7 billion, while the number of deals advanced by 39.00 per cent to 59,185 deals from 42,580 deals.
Consolidated Hallmark was the most active stock yesterday, with a turnover of 354.1 million units valued at N1.5 billion, Fortis Global Insurance traded 307.3 million units worth N818.3 million, Access Holdings exchanged 48.1 million units for N1.4 billion, Chams transacted 37.4 million units worth N163.3 million, and First Holdco sold 35.8 million units valued at N5.1 billion.
By Adedapo Adesanya
Oil prices traded 5 per cent higher on Monday after Iran and the United States argued about demands for compensation, further stalling a possible deal to reopen the Strait of Hormuz.
Brent crude futures chalked up $4.17 or 4.99 per cent to sell at $87.72 a barrel, while the US West Texas Intermediate (WTI) crude futures surged $3.95 or 5.05 per cent to $82.13 per barrel.
Iran said the US must lift sanctions on it and meet other conditions for reopening the vital waterway, which carried a fifth of the world’s oil and liquefied natural gas before the start of the Middle East conflict in late February.
Meanwhile, US President Donald Trump said Iran must pay compensation for “all of the people that they have killed and gravely wounded.”
This comes as the Middle East country said it was nearing a final pact with Oman to define new shipping lanes through the strait but repeated that the US must meet other conditions, including compensation and an end to sanctions and military threats before the strategic waterway is reopened.
In a further threat to supply, the Iran-aligned Houthis said they had struck Saudi Aramco’s Jazan refinery on Sunday. Saudi Aramco has postponed the restart of the 400,000-barrel-per-day refinery to August 30 after two Houthi attacks in recent weeks.
ADNOC, a state-owned oil company in the United Arab Emirates, said on Friday that 15 of its vessels had been attacked while transiting the Strait of Hormuz since the beginning of the conflict.
Meanwhile, Ukraine’s military continued to attack Russia’s energy infrastructure, hitting the Taneco oil refinery in Tatarstan and the ZapSibNeftekhim petrochemical plant in Russia’s Tyumen region.
On the US supply side, stocks of crude oil in the Strategic Petroleum Reserve (SPR) fell by about 6.1 million barrels to 298.7 million barrels last week, the lowest level since January 1983.
Bank of America (BoFA) warned that oil prices could continue climbing into the winter if the US and Iran fail to reach an agreement reopening the Strait of Hormuz, with severe shortages already emerging in diesel, petrol, and global natural gas markets.
Mr Francisco Blanch, Bank of America’s head of commodities and derivatives research, told CNBC on Monday that only around 5 to 10 ships per day are currently passing through Hormuz, compared with roughly 140 before the war. With some crude now being rerouted through Saudi Arabia and the UAE, traffic would need to recover to around 80 to 100 ships per day just to stabilise energy markets.
By Adedapo Adesanya
The Senate Committee on Banking, Insurance and Other Financial Institutions has called for stronger collaboration among financial sector regulators and other stakeholders to strengthen Nigeria’s financial system and support sustainable economic growth.
The committee made the call during an expanded stakeholders’ engagement in Lagos, attended by the leadership of the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Asset Management Corporation of Nigeria (AMCON), National Insurance Commission (NAICOM) and Nigeria Export-Import Bank (NEXIM), among other industry stakeholders and financial experts.
Chairman of the committee, Mr Adetokunbo Abiru (Lagos East), who was represented by Mr Osita Izunaso (Imo West), said stronger legislative reforms and regulatory collaboration were necessary to reposition Nigeria’s financial architecture for long-term economic prosperity.
Mr Abiru said the financial sector remained critical to investment, job creation, business expansion and macroeconomic stability, stressing that its ability to mobilise savings, channel credit to productive sectors, facilitate investment and manage risks was fundamental to sustainable economic growth.
He said the current economic realities required closer collaboration between the legislature and financial regulators, noting that challenges confronting the sector were interconnected and could not be effectively addressed through isolated interventions.
The lawmaker identified inflationary pressures, global economic uncertainties, cybersecurity threats, low insurance penetration and the need to diversify Nigeria’s export base as some of the challenges requiring coordinated policy responses.
He said the engagement was aimed at generating practical solutions to strengthen the country’s financial architecture and support sustainable economic growth.
According to him, monetary policy, financial safety nets, banking institutions, the insurance industry and export finance were interdependent components of a stable financial system and must therefore be strengthened collectively.
The Commissioner for Insurance and Chief Executive Officer of the National Insurance Commission (NAICOM), Mr Olusegun Ayo Omosehin, said the Nigeria Insurance Industry Reform Act (NIIRA) 2025 had contributed significantly to stabilising and repositioning the insurance sector.
Mr Omosehin disclosed that 43 insurance companies had successfully recapitalised, describing the development as a major milestone for the industry.
He commended Abiru and members of the committee for their role in advancing insurance sector reforms and urged the House of Representatives to expedite action on the relevant insurance reform bill to enable it to receive presidential assent and become operational.
Representatives of the CBN Governor and the Managing Directors of AMCON, NEXIM and NDIC also commended the Senate committee for its oversight and legislative support, saying its interventions had strengthened the agencies’ capacity to discharge their statutory mandates.
The engagement, held under the theme, Strengthening Financial System Architecture for Sustainable Economic Growth and Stability in Nigeria, also featured presentations by Professor Uche Uwaleke, President of Capital Market Academics of Nigeria (CMAN); Professor Biodun Adedipe, Chief Consultant, B. Adedipe Associates Limited; and Dr Tilewa Adebajo, Chief Executive Officer of CFG Advisory.
The experts presented policy recommendations on key issues affecting Nigeria’s financial system, with emphasis on financial stability, investment and sustainable economic growth.
Mr Abiru said the Senate would continue to engage financial regulators and other stakeholders to deepen financial inclusion, strengthen public confidence in financial institutions and improve regulatory effectiveness.
He said the broader objective was to position Nigeria’s financial system to compete more effectively in the global economy while remaining resilient and responsive to the country’s economic transformation agenda.
