Moody’s Assigns First-time Ba3, Aaa.ng Ratings to Dangote Cement

July 6, 2017

By Dipo Olowookere

Renowned rating agency, Moody’s Investors Service, has assigned a first-time Ba3 corporate family rating (CFR), Ba3-PD probability of default rating and Aaa.ng national scale rating (NSR) corporate family rating to Dangote Cement Plc.

A statement issued on Wednesday by Moody’s revealed that the outlook on the Nigeria-based cement producer’s ratings is stable.

Vice President and lead analyst for Dangote Cement Plc at Moody’s, Mr Douglas Rowlings, said in the statement that, “Dangote Cement Plc’s Ba3 corporate family rating, one-notch above the Government of Nigeria’s rating, reflects the company’s strong standalone credit profile and track record of demonstrated financial support from a larger and more diversified parent, Dangote Industries Limited.”

It was noted that the ratings factor in the diversification of the company’s revenue streams as DCP’s new cement production plants are commissioned in Africa with Pan-African volumes expected to reach 40 percent of total sales volumes by 2020.

DCP’s Ba3 CFR and Ba3-PD probability of default rating reflect DCP’s strong financial profile, which factors high operating margins trending above 50%; low leverage as measured by debt/EBITDA trending below 1.0x over the next 18 months; and high interest coverage as measured by EBIT/interest expense trending above 8x over the next 18 months.

Other factors are 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; and the additional parent level financial strength afforded by being part of a broader diversified group of companies under the Dangote Industries Limited (DIL) umbrella.

The ratings, according Moody’s, 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.

Dipo Olowookere

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

Mr Olowookere can be reached via [email protected]

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