Fitch Rating has downgraded Dangote Industries Limited, DIL, Aliko Dangote’s firm to ‘B+(nga)’ from AA(nga) putting the company on Negative Watch.
The international rating firm disclosed this in a report on Monday.
According to Fitch Rating, the downgrade of DIL reflects a significant deterioration in the group’s liquidity position following lower-than-expected disposal proceeds, and operational and financial underperformance compared to earlier expectations.
The rating firm further explained that DIL was downgraded due to local currency devaluation, and lack of contracted backup funding to repay its significant debt facilities maturing on 31 August 2024.
According to Fitch Rating, the absence of DIL’s audited accounts for 2023 is a real corporate governance issue.
A statement released by the firm said, “Fitch Ratings has downgraded Dangote Industries Limited (DIL) National Long-Term Rating to ‘B+(nga)’ from ‘AA(nga)’
and senior unsecured debt rating issued by Dangote Industries Funding Plc to ‘B+(nga)’ from ‘AA(nga)! Fitch has simultaneously placed the ratings on the Rating Watch Negative (RWN). A full list of rating actions is below.
“We view the lack of DIL’s audited accounts for 2023 as a corporate governance issue. The RWN reflects uncertainty related to the group’s ability to refinance maturing debt. Lack of tangible steps to refinance or repay the maturing debt would lead to further downgrade while we do not expect a positive rating action until the company’s liquidity position improves substantially.”
It added that key drivers of the downgrade are: “Immediate Refinancing Risk: DIL has immediate debt servicing requirements related to the syndicated loan raised to finance the construction of Dangote
Oil Refining Company (DORC). Further delays in meeting the funding requirements would significantly increase the likelihood of financial restructuring or default and lead to a further rating downgrade.
“Oil Refinery Ramp-up in Progress: DORC has a nominal production capacity of 650,000 barrels per day (bpd) of refined oil products, which will be sold in both the Nigerian domestic and international markets.
“During the 1H 2024, the refinery operated at around 50 percent capacity and produced between 325,000 bpd to 375,000 bpd, but the EBITDA contribution from DORC has been far below our previous projection as the facility is ramping up and optimizing production.
“We expect gradual improvement in EBITDA contribution from DORC going forward following the initiation of gasoline production in Q3 this year.”
The downgrade comes amid the crude oil supply challenge the 650,000 barrels per day Dangote Refinery has been battling.
The development followed a dispute between the Refinery and the Nigerian National Petroleum Company Limited, NNPCL, and the Nigerian Midstream and Downstream Petroleum Regulatory Authority, NMDPRA, over its products.
Recently President Bola Tinubu ordered the NNPCL to sell crude to Dangote Refinery and other local refineries in Naira.
Fitch downgrades Dangote Industries Limited over liquidity issues, Naira devaluation
