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
A 1.08 per cent growth was further printed by the Nigerian Exchange (NGX) Limited on Friday on improved appetite for Nigerian stocks.
Data showed that the insurance sector lost 0.61 per cent yesterday due to profit-taking as the energy space gave up 0.08 per cent, while the commodity counter closed flat.
However, the industrial goods landscape appreciated by 2.06 per cent, the banking index improved by 1.31 per cent, and the consumer goods sector expanded by 0.83 per cent.
At the close of business on Customs Street, the All-Share Index (ASI) increased by 1,563.92 points to 147,040.07 points from 145,476.15 points and the market capitalisation went up by N996 billion to N93.722 trillion from N92.726 trillion.
UAC Nigeria led the advancers’ log yesterday after it grew by 10.00 per cent to N96.80, Transcorp Hotels jumped by 9.71 per cent to N172.80, Royal Exchange appreciated by 8.89 per cent to N1.96, Ikeja Hotel soared by 8.74 per cent to N31.10, and Veritas Kapital leapt by 8.07 per cent to N1.74.
On the flip side, Union Dicon declined by 10.00 per cent to N6.30, ABC Transport slipped by 9.88 per cent to N3.10, AXA Mansard depreciated by 7.19 per cent to N12.90, FTN Cocoa lost 4.62 per cent to trade at N4.75, and Guinea Insurance dropped 3.36 per cent to finish at N1.15.
A total of 38 stocks ended on the gainers’ table and 17 stocks finished on the losers’ table, representing a positive market breadth index and strong investor sentiment.
Traders transacted 361.6 million equities for N14.8 billion in 21,051 deals yesterday versus the 1.9 billion equities worth N19.2 billion traded in 23,369 deals a day earlier, showing a decline in the trading volume, value, and number of deals by 80.97 per cent, 22.92 per cent, and 14.20 per cent, respectively.
The busiest stock for the session was Zenith Bank with 59.5 million units worth N3.6 billion, Access Holdings traded 46.1 million units valued at N973.0 million, Fidelity Bank exchanged 29.4 million units for N560.4 million, FCMB transacted 27.9 million units worth N293.9 million, and Tantalizers sold 13.0 million units valued at N29.8 million.
By Adedapo Adesanya
Energy stocks influenced the 4.76 per cent loss recorded by the NASD Over-the-Counter (OTC) Securities Exchange on Friday, December 5.
The culprits were the duo of 11 Plc and Nipco Plc,with the former shedding N32.17 to end at N291.83 per share compared with the previous day’s N324.00 per share, and the latter down by N21.00 to sell at N195.00 per unit versus the previous session’s N216.00 per unit.
Consequently, the NASD Unlisted Security Index (NSI) slumped by 170.16 points to 3,401.37 points from 3,571.53 points and the market capitalisation lost N101.81 billion to close at N2.035 billion from the N2.136 trillion quoted in the preceding session.
The OTC securities exchange suffered the decline yesterday despite the share prices of three companies closing green.
Central Securities Clearing System (CSCS) Plc was up by N1.80 to close at N39.80 per share compared with Thursday’s price of N38.00 per share, Air Liquide Plc appreciated by N1.09 to N11.99 per unit from N10.90 per unit, and FrieslandCampina Wamco Nigeria Plc grew by 78 Kobo to N56.57 per share from N55.79 per share.
During the session, the volume of transactions rose by 6,885.3 per cent to 18.2 million units from 4.3 million units, the value of transactions ballooned by 10,301.7 per cent to N389.7 million from N347.2 million, but the number of deals declined by 29.7 per cent to 26 deals from 37 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc ended the day as the most traded stock by value on a year-to-date basis with 5.8 billion units worth N16.4 billion, followed by Okitipupa Plc with 170.4 million units valued at N8.0 billion, and Air Liquide Plc with 507.5 million units worth N4.2 billion.
InfraCredit Plc also finished the day as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units worth N524.9 million.
By Adedapo Adesanya
The Naira depreciated further against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, December 5, as FX demand pressure mounts.
The Nigerian currency lost N2.60 or 0.18 per cent against the greenback to close at N1,450.43/$1 compared with the previous day’s N1,447.83/$1.
Equally, the domestic currency declined against the Pound Sterling in the official forex market during the session by N4.48 to trade at N1,935.45/£1, in contrast to Thursday’s closing price of N1,930.97/£1 and shrank against the Euro by 43 Kobo to end at N1,689.17/€1 versus the preceding session’s rate of N1,688.74/€1.
Similarly, the local currency performed badly against the US Dollar at the GTBank FX counter by N2 to close at N1,455/$1 versus Thursday’s N1,453/$1 but traded flat at the parallel market at N14.65/$1.
As the country gets into the festive period, pressure mounted on the local currency reflecting higher foreign payments and lower FX inflows.
However, there are expectations that the Nigerian currency will be stable, supported by interventions by to the Central Bank of Nigeria (CBN) in the face of steady dollar Demand and inflows from Detty December festivities that will give the Naira a boost after it depreciated mildly last month.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450/$1 next week, buoyed by improved FX interventions by the apex bank.
As for the crypto market, it was down yesterday due to profit-taking associated with year-end trading. However, the December 1-Year Consumer Inflation Expectation by the University of Michigan fell to 4.1 per cent from 4.5 per cent previously and 4.5 per cent expected. The 5-Year Consumer Inflation Expectation fell to 3.2 per cent from 3.4 per cent previously and 3.4 per cent expected.
With the dearth of official economic data of late, these private surveys have taken on a new level of significance and the market banks of them to make decisions.
Cardano (ADA) depreciated by 5.7 per cent to $0.4142, Dogecoin (DOGE) slid by 5.1 per cent to $0.1394, Ethereum (ETH) dropped by 3.9 per cent to $3,039.75, Solana (SOL) declined by 3.8 per cent to $133.24, and Litecoin (LTC) fell by 3.7 per cent to $80.59.
Further, Bitcoin (BTC) went down by 2.6 per cent to sell at $89,683.72, Binance Coin (BNB) slumped by 2.2 per cent to $883.59, and Ripple (XRP) shrank by 2.1 per cent to $2.04, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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