Fitch Ratings has downgraded Dangote Industries Limited (DIL) from ‘AA(nga)’ to ‘B+(nga)’, placing the company on Negative Watch.
The move reflects mounting financial pressures and operational challenges faced by Aliko Dangote’s firm, one of Africa’s largest conglomerates.
According to Fitch Ratings, the downgrade stems from a considerable deterioration in DIL’s liquidity position.
The firm highlighted several factors contributing to the rating action:
Fitch noted that DIL has experienced lower-than-expected proceeds from asset disposals, coupled with operational and financial underperformance relative to previous projections.
The company’s inability to meet financial expectations has exacerbated its liquidity issues.
The devaluation of the Nigerian naira has further stressed DIL’s financial position, impacting its ability to manage debt and operational costs effectively.
DIL faces significant debt obligations maturing on August 31, 2024, with no contracted backup funding in place to cover these liabilities. The uncertainty surrounding the refinancing of this debt has heightened concerns about the company’s financial stability.
Fitch highlighted the lack of audited financial accounts for 2023 as a serious corporate governance concern.
The absence of these accounts raises questions about the transparency and accountability of the company’s financial management.
In its statement, Fitch Ratings elaborated on the factors driving the downgrade:
Immediate Refinancing Risk: DIL has imminent debt servicing requirements related to a syndicated loan taken to finance the construction of the Dangote Oil Refining Company (DORC).
Further delays in meeting these funding requirements could significantly heighten the risk of financial restructuring or default.
Oil Refinery Ramp-up: The Dangote Refinery, with a nominal production capacity of 650,000 barrels per day (bpd), is still in the process of ramping up production.
During the first half of 2024, the refinery operated at approximately 50% capacity, producing between 325,000 bpd and 375,000 bpd.
The EBITDA contribution from the refinery has fallen short of earlier projections, although a gradual improvement is expected as gasoline production begins in Q3 of this year.
The downgrade occurs against the backdrop of ongoing challenges in crude oil supply faced by the Dangote Refinery.
The refinery has been embroiled in disputes with the Nigerian National Petroleum Company Limited (NNPCL) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) regarding the sale of its products.
Recently, President Bola Tinubu intervened, directing the NNPCL to sell crude oil to Dangote Refinery and other local refineries in Naira, a move aimed at stabilizing the supply and supporting domestic refining operations.
The downgrade by Fitch Ratings underscores the growing financial strains faced by Dangote Industries amid a challenging economic environment in Nigeria.
The company’s ability to address its liquidity issues, secure necessary funding, and improve operational performance will be critical in determining its future creditworthiness.
Fitch has placed DIL’s ratings on Negative Watch, reflecting the uncertainty regarding the company’s ability to refinance its maturing debt.
The agency has indicated that a failure to demonstrate tangible steps towards improving liquidity and addressing governance issues could lead to further downgrades.
Conversely, significant improvement in these areas could potentially stabilize or even enhance the company’s rating in the future.
