Economy
Moody’s Downgrades Dangote Cement National Scale Rating
By Dipo Olowookere
The national scale rating of Dangote Cement Plc has been downgraded from Aaa.ng to Aa2.ng. This action was taken by Moody’s Investors Service and it was to factor a weaker Nigerian government rating.
Last Wednesday, Moody’s announced a change in the sovereign outlook of Nigeria’s ratings to negative from stable. Consequently, the rating agency took actions on the ratings of Dangote Cement and two other companies operating in the country; IHS Netherlands Holdco B.V. (IHS) and Seplat Petroleum Development Company Plc (Seplat).
In a report released on Saturday, Moody’s said it believes that the credit quality of these companies is inevitably tied to the economic and political developments in Nigeria, with earnings and cash flows generated in Nigeria.
“The soft Nigerian economic growth has translated into limited expansionary activity in the wider consumer and business environments, leading to deteriorating corporate earnings and weak consumer spending. The rating agency expects low real GDP growth in Nigeria of 2.5 percent for 2020,” a statement from the firm said.
In the statement, Moody’s said it affirmed the B1 corporate family rating (CFR) of Dangote Cement and then changed the rating outlook to negative from stable.
Concerning the downgrading of the national scale rating to Aa2.ng, the agency said it considers the cement giant’s strong intrinsic credit quality balanced against the meaningful linkage and limited ability to withstand stress at the Nigerian sovereign or macroeconomic level.
It noted that the firm has a very strong credit profile, however, as Africa’s largest cement producer, it has material production concentration to Nigeria which generates around 69 percent of revenues.
“The B1 CFR is one notch above the sovereign rating because of the company’s strong credit metrics including debt/EBITDA of 1.0x, the track record of demonstrated financial support from a larger and more diversified parent, Dangote Industries Limited (DIL), and funding in local currency,” it stated.
“The cement industry is energy intensive and the mining and manufacturing process for cement production consumes large amounts of coal, electricity and water. Dangote’s production meets domestic emission standards and has implemented measures to increase energy efficiency.
“In terms of corporate governance, the company is 85.1 percent owned by Dangote Industries Limited, which is owned by its founder and chairman, Aliko Dangote. This does present key man risk in Moody’s view given that Mr Dangote continues to play a pivotal part in the fortunes of the company,” the report said.
Moody’s noted that given the negative outlook on the Nigerian sovereign and strong linkages to the Nigerian economy, an upgrade is unlikely in the near-term. It added that the outlook could be changed to stable if the Government of Nigeria’s rating outlook is changed to stable.
“Upward pressure on the ratings is constrained by the Government of Nigeria’s local currency issuer rating of B2 as we consider a strong interlinkage with Dangote Cement’s ratings due to the high revenue contribution from its domestic operations which constrains the company to be rated one rating level above the sovereign,” it said.
However, it warned that the ratings are likely to be downgraded in the case of a downgrade of the Government of Nigeria’s rating.
It said this could also occur if the government of Nigeria introduces special taxes, levies or other punitive measures in respect of Dangote’s profits or cashflow.
It stated that another government’s actions that could result in a downgrade could be if the operating margins falls below 20 percent on a sustained basis; if the adjusted debt to EBITDA trends above 4x or adjusted EBIT to interest expense trends below 2.5x and if liquidity becomes pressured.
If further said it could downgrade the rating if Dangote Cement moves away from its conservative financial policies, most notably matching of the currency of its underlying cash flow generation to that of debt commitments.
By Adedapo Adesanya
Four securities weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.95 per cent on Friday, erasing N41.17 billion from the bourse, which had its market capitalisation at N2.567 trillion compared with the previous session’s N2.618 trillion.
In the same vein, the NASD Unlisted Security Index (NSI) decreased at the close of business by 85.28 points to 4,277.07 points from 4,362.32 points.
The price decliners were led by 11 Plc, which gave up N20.50 to sell at N200.50 per share compared with the preceding day’s N221.00 per share, FrieslandCampina Wamco Nigeria Plc dropped N16.94 to close at N155.20 per unit versus Thursday’s closing price of N172.14 per unit, Central Securities Clearing System (CSCS) Plc went down by N2.11 to N84.68 per share from N86.79 per share, and Afriland Properties Plc lost 11 Kobo to end at N16.74 per unit, in contrast to the N16.85 per unit it closed a day earlier.
During the trading day, the value of transactions jumped by 172.1 per cent to N29.9 million from the preceding session’s N10.9 million, and the volume of trades soared by 136.5 per cent to 955,096 units from the previous 403,901 units, while the number of deals went down by 11.4 per cent to 31 deals from 35 deals.
Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units worth N6.5 billion, and CSCS Plc with 68.6 million units sold for N4.7 billion.
GNI Plc also ended the session as the most traded stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
By Dipo Olowookere
The last trading session of this week on the floor of the Nigerian Exchange (NGX) Limited ended on a negative note, with a 0.66 per cent loss on Friday.
This was influenced by sustained selling pressure and cautious trading, which forced investors into profit-taking.
Data obtained by Business Post showed that the energy sector fell by 4.66 per cent, the insurance counter dipped by 2.23 per cent, the consumer goods index depreciated by 0.96 per cent, and the banking segment shed 0.28 per cent, while the industrial goods space remained unchanged.
At the close of business, the All-Share Index (ASI) of Nigeria’s stock exchange went down by 1,531.81 points to 232,049.02 points from 233,580.83 points, and the market capitalisation dropped N983 billion to settle at N148.905 trillion compared with Thursday’s N149.888 trillion.
Aradel was the worst-performing equity after it lost 10.00 per cent to close at N1,417.50. International Energy Insurance slipped by 9.95 per cent to N5.79, Trans-Nationwide Express depreciated by 9.89 per cent to N3.28, eTranzact crashed by 9.79 per cent to N14.75, and UPDC slumped by 9.72 per cent to N28.12.
The best-performing equity for the day was Universal Insurance, which gained 6.32 per cent to close at N1.01, McNichols grew by 5.52 per cent to N8.60, Linkage Assurance expanded by 4.67 per cent to N1.57, NGX Group appreciated by 4.35 per cent to N120.00, and Transcorp increased by 3.62 per cent to N41.50.
As look at the activity level indicated that investors traded 388.7 million stocks worth N18.4 billion in 44,631 deals compared with the 393.7 million stocks valued at N19.2 billion executed in 45,813 deals a day earlier, representing a decline in the trading volume, value, and number of deals by 1.27 per cent, 4.17 per cent, and 2.58 per cent, respectively.
By Adedapo Adesanya
The Naira recorded a loss of 82 Kobo or 0.06 per cent against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, June 26, exchanging at N1,380.93/$1, in contrast to the previous day’s rate of N1,380.11/$1.
Equally, the domestic currency further weakened against the Pound Sterling in the official FX market yesterday by N6.06 to settle at N1,824.90/£1 versus the preceding session’s N1,818.84/£1, and lost N10.74 on the Euro to sell at N1,577 .58/€1 versus N1,566.84/€1.
At the GTBank forex counter, the Naira depreciated against the greenback during the session by N4 to close at N1,387/$1, in contrast to Thursday’s value of N1,383/$1, and at the parallel market, it was unchanged at N1,395/$1.
Interbank FX activity among financial institutions has fluctuated amid a sharp slowdown in forex market interventions by the Central Bank of Nigeria (CBN), as it allows demand and supply to move the market.
Also, a stronger greenback has generally put significant pressure on emerging-market currencies.
Nigeria has accessed the first tranche of a proposed $5 billion derivatives financing arrangement with First Abu Dhabi Bank PJSC, the largest lender in the United Arab Emirates (UAE).
The $5 billion facility, approved by the National Assembly earlier this year, is part of the federal government’s plan to diversify external financing sources and reduce borrowing costs. Structured as a Total Return Swap with First Abu Dhabi Bank, proceeds are earmarked for refinancing debt and supporting infrastructure financing.
If the proceeds are brought into the country through the official FX market, the transaction will increase the currency reserves or Dollar liquidity.
At the cryptocurrency market, Solana (SOL) grew by 2.2 per cent to $71.92, Cardano (ADA) gained 1.1 per cent to trade at $0.1474, Ripple (XRP) also appreciated by 1.1 per cent to $1.05, Dogecoin (DOGE) expanded by 0.9 per cent to $0.0755, and Ethereum (ETH) improved by 0.4 per cent to $1,578.84.
On the flip side, TRON (TRX) slid 0.6 per cent to $0.3203, Binance Coin (BNB) slumped by 0.3 per cent to $564.33, and Bitcoin fell by 0.2 per cent to $60,219.37, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
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