Fitch downgrades Dangote Industries as GCR affirms group’s ratings

Fitch Ratings has downgraded Dangote Industries, the conglomerate of companies owned by Africa’s richest person Aliko Dangote, noting a decline in the group’s liquidity position amid operational and financial underperformance.

The latest review of the creditworthiness of the corporation saw Fitch lower its National Long-Term Rating to ‘B+(nga)’ from ‘AA(nga)’ and placed the ratings of the group on rating watch negative (RWN).

The slide in Dangote Industries’ creditworthiness was also influenced by naira devaluation as well as a lack of “contracted backup funding to repay its significant debt facilities maturing on 31 August 2024,” according to the New York-based firm.

“We view the lack of DIL’s audited accounts for 2023 as a corporate governance issue,” it said.

“The RWN reflects uncertainty related to the group’s ability to refinance maturing debt.”

Fitch remarked that a positive rating action is premised only on a significant improvement in the company’s liquidity position.

Fitch’s assessment diverged from that of GCR Ratings on Monday, which affirmed both the national scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG), respectively accorded to the group.

GCR based the affirmation of the ratings on the potential significant improvement in Dangote Industries’ earnings after operations started at the petrochemical refinery in the outskirts of Lagos, with huge earnings similarly anticipated from other subsidiaries within the group.

“The ratings are constrained by the adverse impact of the currency devaluation on the profitability and financial position of the group, given its significant foreign debt exposure,” GCR said.

It noted that the cumulative N300 billion Series 1 and Series 2 senior unsecured bonds issued by the group’s sponsored special purpose, Dangote Industries Funding Plc, in 2022 also bear the same national scale long-term rating as that accorded to Dangote Industries.

Consequently, any change in the group’s long-term corporate rating would affect the bonds’ ratings.

Fitch observed that the naira’s devaluation last year triggered a foreign exchange loss of N2.7 trillion for the conglomerate, causing a mismatch between its dollar-denominated debt and local revenues.

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It anticipates that weaker retail demand for cement, notably in Nigeria, Dangote Cement’s largest market, and constraints in passing higher raw material costs to customers will cause Dangote Industries’ EBITDA margin to fall this year.

EBITDA margin, a key profitability metric, measures a company’s cash profit within a year/period and is calculated by expressing earnings before interest, tax, depreciation, and amortisation as a percentage of revenue.