GCR Ratings (GCR) has placed Dangote Industries Limited’s national-scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG), respectively, on Ratings Watch Negative due to escalating debt, which surpassed N14 trillion in the third quarter of 2024.
Concurrently, GCR also placed the national-scale long-term issue rating of AA+(NG) assigned to each of Dangote Industries Funding Plc’s Series 1 Tranche A and Tranche B Bonds and Series 2 Bond on Rating Watch Negative.
The Africa-focused rating agency stated that the Rating Watch Negative on Dangote Industries Limited (the group) and the bonds reflects the increase in debt and the deterioration of the gearing metrics due to new working capital loans obtained to procure crude oil for the refinery during its phased commissioning in 2024, further compounded by the impact of the Naira devaluation on USD loans.
According to GCR, group earnings were also suppressed in the nine-month period ending 30 September 2024, as the refinery incurred losses during the commissioning phase, obscuring the profitability of other operating subsidiaries.
The group’s revenue, which reached N9.6 trillion or USD6.8 billion in 9M 2024, exceeded GCR’s forecast of N4.7 trillion, primarily driven by the traded volumes of diesel, naphtha, aviation turbine kerosene (ATK), as well as robust cement and fertilizer sales.
However, GCR noted that the group’s earnings before interest, tax, depreciation, and amortization (EBITDA) margin fell below 10%, compared to a five-year historical average of 33.7%, highlighting the inherently low oil refining margins, particularly during the commissioning phase.
“The refinery has since increased capacity utilization and has commenced the production of higher-value products, including PMS and polypropylene, which now contribute to significant foreign exchange earnings—over 30% of revenue.
“Nevertheless, the anticipated improvement in margins could be constrained by the ongoing intense competition, which has necessitated price reductions and rebates to customers.”
GCR stated in the rating note that the group’s total debt (including shareholder loans) increased above N14 trillion in 9M 2024, from N6.4 trillion, exceeding the N5.4 trillion projection.
This was triggered by the substantial increase in working capital funding for the refinery operations and the impact of the Naira devaluation on foreign debt, the rating note clarified.
Details from the rating note revealed that the group’s short-term debt rose to N8.2 trillion from N4.4 trillion, although refinancing risk is somewhat mitigated by the subordinated shareholder loans of N3.8 trillion that have been deferred and crude oil finance facilities that are backed by rapidly selling inventories.
The rating agency noted that there was a notable deterioration in the leverage metrics as of 9M 2024, with net debt to EBITDA at 18x, up from 5.6x, and net interest coverage at 0.5x, down from 1.6x.
“We anticipate some improvements in the metrics over the next 18 months as the refinery increases operations and profitability strengthens, but the earnings margin will remain weaker than pre-2024 levels,” GCR stated.
 has placed Dangote Industries Limited’s national scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG)....){kind=link}