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 Modupe Gbadeyanka
The federal government, the 36 states of the federation and the 774 local government areas have received N1.727 trillion from the Federal Accounts Allocation Committee (FAAC) for December 2024.
The funds were disbursed to the three tiers of government from the revenue generated by the nation in November 2024.
At the December meeting of FAAC held in Abuja, it was stated that the amount distributed comprised distributable statutory revenue of N455.354 billion, distributable Value Added Tax (VAT) revenue of N585.700 billion, Electronic Money Transfer Levy (EMTL) revenue of N15.046 billion and Exchange Difference revenue of N671.392 billion.
According to a statement signed on Friday by the Director of Press and Public Relations for FAAC, Mr Bawa Mokwa, the money generated last month was about N3.143 trillion, with N103.307 billion used for cost of collection and N1.312 trillion for transfers, interventions and refunds.
It was disclosed that gross statutory revenue of N1.827 trillion was received compared with the N1.336 trillion recorded a month earlier.
The statement said gross revenue of N628.972 billion was available from VAT versus N668.291 billion in the preceding month.
The organisation stated that last month, oil and gas royalty and CET levies recorded significant increases, while excise duty, VAT, import duty, Petroleum Profit Tax (PPT), Companies Income Tax (CIT) and EMTL decreased considerably.
As for the sharing, FAAC disclosed that from the N1.727 trillion, the central government got N581.856 billion, the states received N549.792 billion, the councils took N402.553 billion, while the benefiting states got N193.291 billion as 13 per cent derivation revenue.
From the N585.700 billion VAT earnings, the national government got N87.855 billion, the states received N292.850 billion and the local councils were given N204.995 billion.
Also, from the N455.354 billion distributable statutory revenue, the federal government was given N175.690 billion, the states got N89.113 billion, the local governments had N68.702 billion, and the benefiting states received N121.849 billion as 13 per cent derivation revenue.
In addition, from the N15.046 billion EMTL revenue, FAAC shared N2.257 billion to the federal government, disbursed N7.523 billion to the states and transferred N5.266 billion to the local councils.
Further, from the N671.392 billion Exchange Difference earnings, it gave central government N316.054 billion, the states N160.306 billion, the local government areas N123.590 billion, and the oil-producing states N71.442 billion as 13 per cent derivation revenue.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.65 per cent gain on Friday, December 13, boosted by three equities admitted on the trading platform.
On the last trading session of the week, Okitipupa Plc appreciated by N2.70 to settle at N29.74 per share versus Thursday’s closing price of N27.04 per share, FrieslandCampina Wamco Nigeria Plc added N2.49 to end the session at N42.85 per unit compared with the previous day’s N40.36 per unit, and Afriland Properties Plc gained 50 Kobo to close at N16.30 per share, in contrast to the preceding session’s N15.80 per share.
Consequently, the market capitalisation added N6.89 billion to settle at N1.062 trillion compared with the preceding day’s N1.055 trillion and the NASD Unlisted Security Index (NSI) gained 19.66 points to wrap the session at 3,032.16 points compared with 3,012.50 points recorded in the previous session.
Yesterday, the volume of securities traded by investors increased by 171.6 per cent to 1.2 million units from the 447,905 units recorded a day earlier, but the value of shares traded by the market participants declined by 19.3 per cent to N2.4 million from the N3.02 million achieved a day earlier, and the number of deals went down by 14.3 per cent to 18 deals from 21 deals.
At the close of business, Geo-Fluids Plc was the most active stock by volume on a year-to-date basis with a turnover of 1.7 billion units worth N3.9 billion, followed by Okitipupa Plc with the sale of 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.3 million units sold for N5.3 million.
In the same vein, Aradel Holdings Plc remained the most active stock by value on a year-to-date basis with the sale of 108.7 million units for N89.2 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with a turnover of 297.3 million units worth N5.3 billion.
By Adedapo Adesanya
The Naira appreciated further against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by N1.50 or 0.09 per cent to close at N1,533.00/$1 on Friday, December 13 versus the N1,534.50/$1 it was transacted on Thursday.
The local currency has continued to benefit from the Electronic Foreign Exchange Matching System (EFEMS) introduced by the Central Bank of Nigeria (CBN) this month.
The implementation of the forex system comes with diverse implications for all segments of the financial markets that deal with FX, including the rebound in the value of the Naira across markets.
The system instantly reflects data on all FX transactions conducted in the interbank market and approved by the CBN.
Market analysts say the publication of real-time prices and buy-sell orders data from this system has lent support to the Naira in the official market and tackled speculation.
In the official market yesterday, the domestic currency improved its value against the Pound Sterling by N12.58 to wrap the session at N1,942.19/£1 compared with the previous day’s N1,954.77/£1 and against the Euro, it gained N2.44 to close at N1,612.85/€1 versus Thursday’s closing price of N1,610.41/€1.
At the black market, the Nigerian Naira appreciated against the greenback on Friday by N30 to sell for N1,650/$1 compared with the preceding session’s value of N1,680/$1.
Meanwhile, the cryptocurrency market was largely positive as investors banked on recent signals, including fresh support from US President-elect, Mr Donald Trump, as well as interest rate cuts by the European Central Bank (ECB).
Ripple (XRP) added 7.3 per cent to sell at $2.49, Binance Coin (BNB) rose by 3.5 per cent to $728.28, Cardano (ADA) expanded by 2.4 per cent to trade at $1.11, Litecoin (LTC) increased by 2.3 per cent to $122.56, Bitcoin (BTC) gained 1.9 per cent to settle at $101,766.17, Dogecoin (DOGE) jumped by 1.2 per cent to $0.4064, Solana (SOL) soared by 0.7 per cent to $226.15 and Ethereum (ETH) advanced by 0.6 per cent to $3,925.35, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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