Economy
GCR Affirms AA+(NG) Rating on Dangote Cement
By Modupe Gbadeyanka
The long term and short term national scale issuer ratings of AA+(NG) and A1+(NG) respectively have been affirmed on Dangote Cement Plc by Global Credit Ratings (GCR).
In a statement issued by the rating agency last Monday, it further said the cement company’s outlook has been accorded as stable.
Explaining why it accorded the ratings on Dangote Cement, GCR said it took cognisance the firm’s strong position as one of the world’s top 20 cement companies by installed capacity.
Management plans to revise its expansion pipeline, in view of foreign currency restrictions and unutilised capacity in Nigeria.
Medium term commitments have been limited to grinding plants in Cote d’Ivoire and Ghana, while execution of the rest of the capex plan will depend on foreign currency availability.
Nigeria remains the dominant area of operations and accounted for 69% and 90% of revenue and EBITDA respectively in FY16 (FY15: 79% and 91%).
Dangote Cement Plc is Africa’s leading integrated cement group and subsidiary of Dangote Industries Limited (DIL), a diversified multinational corporate with operations spanning building materials, packaging, logistics, real estate, food and beverages, as well as real estate.
Rapid fixed capital accumulation increased the company’s installed capacity to c.46 million tonnes per annum (mtpa) across 10 countries by 1H FY17, from just 8mtpa in 2011.
The group has secured clinker sufficiency in Nigeria, and as a low-cost producer, is well positioned to absorb exogenous shocks without incurring material earnings variability.
Its strategic vision is to remain Africa’s leading producer of cement and aims to be the leader in quality, costs and services across all operations, with a market share of at least 30% and a first or second position in each market.
The group achieved 20% CAGR in revenue in the five years under review, registering turnover of N615.1bn in FY16.
Dangote Cement’s strong top line performance was underpinned by dominance of the domestic market, which enabled it to absorb sharp price compression to secure volume traction. Some regions within Pan-African operations also reported strong sales growth in 2016. Combined with marked energy and distribution cost escalation, challenges in Tanzania and Ghana, as well as a weaker Naira, the EBITDA margin shed c.12 percentage points to 41.7% (five-year average 53.8%). Nevertheless, EBITDA eased just 2% to N256.8 billion in FY16.
Repricing in the domestic market bolstered the EBITDA margin to 49.2% in 1H FY17, while increased productivity and the bedding down of additional international capacity are expected to see it average at a strong 55% in the medium term.
Operating profit reduced by 12% to N182 billion in FY16, before increasing 67% YoY to N162.8 billion in 1H FY17 at a wider 39.5% margin (FY16: 29.6%). Dangote Cement’s margins remain well above those of its peers.
Cash generation remains sound, albeit discretionary cash flow coverage of net debt has eased to new lows in FY16 and 1H FY17 (65%; 48%), and the short term debt exposure was high at 71% of total debt at 1H FY17 (FY16: 59%). Net interest cover remains adequate (FY16: 4.3x; 1H FY17: 8.5x), and is expected to trend within range for the current ratings in the medium term.
Despite an aggressive cumulative outlay of N813.6 billion on capex in the five and a half years under review, Dangote Cement also paid out N573.2 billion in distributions, which represented 63% of cumulative net income.
This has seen total borrowings more than double from N181.2 billion at FYE13 to N432.6 billion at 1H FY17, of which 47% represented DIL (Naira denominated) loans.
In addition to proven shareholder support, note is also taken of established relationships with strong funders, N120 billion in trade finance credit lines, as well as plans to access debt capital markets to reduce reliance on shareholder loans and enhance funding flexibility and improve the debt maturity profile. International operations do provide a natural currency hedge, albeit constrained by the erratic performance trajectory in some regions.
Although net gearing and net debt to EBITDA have risen from very conservative levels reported prior to FY14, they remain aligned to the ratings, at 39% and 79% respectively as of 1H FY17 (FY16: 32%; 100%). Stressed scenarios indicate that metrics are expected to remain within range over the rating horizon, assuming a tapered capex plan (amongst other considerations).
An upgrade will be dependent on the proven ability to sustain high capacity utilisation domestically in the medium term and the successful bedding down of international capacity enhancements translating to strong Pan-African free cash flows and sustained conservative gearing metrics for the Group.
Conversely, slower than anticipated economic growth in key territories, delays in rolling out public infrastructure projects, foreign currency scarcity, the adverse movement in foreign exchange rates, punitive regulatory changes and competitive pressures may constrain demand and/or pricing flexibility. This could adversely affect earnings and result in liquidity strain, increased gearing metrics and impede debt service, placing downward pressure on the ratings.
By Adedapo Adesanya
It was another outstanding performance for the Nigerian Naira in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Tuesday, March 17, as it further appreciated against the US Dollar by N8.46 or 0.62 per cent to trade at N1,344.04/$1, in contrast to Monday’s closing rate of N1,357.77/$1.
It also gained N6.85 against the Euro in the official FX market during the session to sell at N1,551.46/€1 compared with the previous day’s N1,558.31/€1, but weakened against the Pound Sterling by N6.33 to close at N1,795.87/£1 versus Monday’s value of N1,789.54/£1.
At the GTBank forex counter, the Naira improved its value against the Dollar yesterday by N20 to settle at N1,365/$1 compared with the preceding session’s N1,385/$1, and in the black market, it remained unchanged at N1,395/$1.
With over $50 billion in foreign reserves, analysts assert that the outlook for the Naira is positive, powered by expectations of increased forex receipts from Nigeria’s hydrocarbon sales, as potential disruptions to global oil supply have increased volatility in energy markets.
The pressure that has piled on the local currency appeared to ease, buoyed by higher oil prices that have continued to bolster market sentiment.
Call for allies to help reopen the Strait of Hormuz was ignored, prompting traders to speculate that a continued closure is likely, which means oil prices will remain higher.
Meanwhile, the cryptocurrency market was in green ahead of a Federal Reserve meeting. There are no expectations that the US central bank will move rates at its Wednesday meeting, but Chairman Jerome Powell’s tone regarding the inflation outlook could prove a catalyst.
Analysts noted that a hawkish tone alongside hot February Producer Price Index (PPI) inflation data could weigh on equities and crypto, but Mr Powell’s signal that the Federal Reserve is treating rising oil prices as a temporary shock could extend the crypto rally.
Cardano (ADA) appreciated by 2.6 per cent to $0.2905, TRON (TRX) grew by 2.3 per cent to $0.3033, Ripple (XRP) jumped 1.2 per cent to $1.52, Ethereum (ETH) rose 0.9 per cent to $2,320.83, Dogecoin (DOGE) increased by 0.8 per cent to $0.1005, Solana (SOL) gained 0.6 per cent to sell at $94.11, and Bitcoin (BTC) went up by 0.3 per cent to $74,073.07.
However, Binance Coin (BNB) lost 0.3 per cent to close at $672.27, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 apiece.
By Adedapo Adesanya
Oil was up more than 3 per cent on Tuesday as renewed Iranian attacks on the United Arab Emirates (UAE) heightened concerns about the worsening outlook for global supply.
Brent crude futures appreciated by $3.21 or 3.2 per cent to $103.42 a barrel, while the US West Texas Intermediate (WTI) crude futures gained $2.71 or 2.9 per cent to trade at $96.21 per barrel.
Prices had fallen previously after some vessels sailed through the critical Strait of Hormuz, a vital gateway for about 20 per cent of the world’s oil and liquefied natural gas trade
The Iran war shows no signs of abating as it renewed attacks on the United Arab Emirates (UAE) on Tuesday, causing oil loading at the port of Fujairah to be at least partly halted after the third attack in four days ignited a fire at the export terminal.
Fujairah, located on the Gulf of Oman just outside the Strait of Hormuz, is a critical exit point for oil volumes equivalent to roughly 1 per cent of global demand.
The attacks on oil installations by Iran and the ongoing disruption to shipping through the Strait of Hormuz have traders worried for long-term impairment to supply that could keep prices elevated.
The effective closure of the strait has forced the UAE, which is the third-largest producer in the Organisation of the Petroleum Exporting Countries (OPEC), to reduce its output by more than half.
Several allies of the US rebuffed President Donald Trump’s call on Monday to send warships to escort shipping through the strait.
On Tuesday, French President Emmanuel Macron said France would never take part in operations to unblock the strait, and would only participate in a coalition that could provide freedom of navigation once hostilities ended.
Meanwhile, the Trump administration reiterated its position that they see the Iran conflict lasting weeks, not months.
The head of the International Energy Agency (IEA), Mr Fatih Birol, has suggested member countries could release more oil, in addition to the 400 million barrels they have already agreed to draw from strategic reserves.
By Adedapo Adesanya
A 10 per cent equity stake has been acquired by Odu’a Investment Company Limited in a subsidiary of FCMB Group Plc, FCMB Pensions Limited.
The move is aimed at strengthening its presence in Nigeria’s growing pension industry.
The company disclosed that the transaction was completed after receiving all required regulatory approvals from the National Pension Commission (PenCom) and the Central Bank of Nigeria (CBN), while the Securities and Exchange Commission (SEC) has also been duly notified.
Odu’a Investment said the acquisition represents a strategic investment in a resilient and steadily expanding segment of Nigeria’s financial services sector.
The company added that the deal also reinforces FCMB Pensions’ shareholder base through the entry of a long-term institutional investor.
Chairman of Odu’a Investment Company Limited, Mr Bimbo Ashiru, said the investment aligns with the organisation’s strategy of partnering with strong institutions operating in sectors critical to Nigeria’s long-term economic stability.
“This investment reflects Odu’a’s strategy of partnering with strong institutions operating in sectors that are central to Nigeria’s long-term economic stability and growth,” he said in a statement.
“The pension industry plays a critical role in mobilising long-term savings and strengthening the financial system. FCMB Pensions has built a solid platform serving contributors across Nigeria, and we see a significant opportunity to support its continued growth and impact,” he added.
Also commenting on the transaction, the Managing Director of Odu’a Investment Company Limited, Mr Abdulrahman Yinusa, described the deal as a vote of confidence in FCMB Pensions’ leadership and long-term prospects.
“Our partnership with FCMB Group Plc reflects confidence in FCMB Pensions’ strategy, leadership, and long-term potential. Together, we will work to expand its reach, support its strategic objectives, and deliver sustained value to contributors and other stakeholders,” Mr Yinusa said.
The investment brings together two established institutions with complementary strengths and a shared focus on long-term value creation. According to the company, the partnership positions FCMB Pensions to deepen market penetration and enhance service delivery within Nigeria’s contributory pension scheme.
Odu’a Investment Company Limited is an investment holding company jointly owned by the governments of the six South-West states of Nigeria.
The firm manages a diversified portfolio spanning real estate, financial services, hospitality, agriculture, and industrial investments, with a mandate to generate sustainable economic value and support regional development.
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