By Dipo Olowookere
The N300 billion domestic medium-term note programme of Dangote Cement Plc has been assigned some ratings by a renowned rating agency, Moody’s Investors Service.
A statement issued on Tuesday by Moody’s said the debt issuance has been assigned a (P)B2 local currency rating and Aa3.ng national scale rating (NSR), while the proposed series 1 notes under the scheme has received a B2 local currency rating and Aa3.ng NSR by the agency.
Moody’s explained that the (P)B2 and Aa3.ng ratings on the debt programme and B2 / Aa3.ng ratings on the first tranche of the exercise are one notch lower than the company’s B1 corporate family rating (CFR), which it affirmed alongside the B1-PD probability of default rating and Aa2.ng NSR CFR.
It was disclosed that the series 1 notes do not benefit from upstream guarantees from operating subsidiaries where the bulk of the secured debt is issued.
“As a result, the notes effectively rank junior to other operating subsidiary secured liabilities in a default scenario,” the statement said.
Moody’s, which said the rating outlook was negative, noted that the B1 rating is supported by the company’s strong market presence in Nigeria and other African markets in which it operates; high gross margins above 60 percent on a Moody’s adjusted basis; low leverage of 0.9x, as measured by gross debt/EBITDA and high interest coverage of 6.6x, as measured by EBIT/interest expense, in 2019; funding policies that match debt funding to the local currency cash flow generation; and prudent financial policies that ensure credit metrics remain strong through operating and project build cycles.
The rating firm stated that it will unlikely upgrade the B1 rating on Dangote Cement because it is constrained by the country’s local currency issuer rating of B2.
It said due to the high revenue contribution from its domestic operations, there is a strong interlinkage between the company’s rating and the sovereign rating, which prevents the cement giant to be rated more than one rating level above the sovereign.
“Even if the sovereign rating were to be upgraded, DCP would need to demonstrate a track record of good liquidity management for an upgrade to be considered,” it said.
Moody’s said the negative outlook on Dangote Cement mirrors the Nigerian sovereign negative outlook, reflecting Moody’s view that the credit quality of the organisation was tied to the economic and political developments in Nigeria.
“The negative outlook further reflects DCP’s reliance on short term funding combined with high annual dividends payments, which expose the company to a potential liquidity shortfall over the next 12 to 18 months.
“Moody’s expect the issuance of long term-debt to reduce the reliance on short-term debt, alleviating near term liquidity risk,” the statement said.
Adedapo Adesanya 
Modupe Gbadeyanka