Dangote, IHS Holding, Seplat Rating Outlook Upgraded to Stable
Nigerian cement producer Dangote, IHS Holdings Limited and Seplat Energy Plc. have seen their separate ratings outlook changed to stable from negative, according to Moody’s in a statement.
According to Moody’s note, the change of the outlook on the ratings of these companies to stable from negative is a direct consequence of the change in outlook on the ratings of the Nigerian sovereign to stable from negative.
These companies generate a material portion of their earnings and cash flows in Nigeria and are materially exposed to Nigeria’s political, legal, fiscal and regulatory environment, Moody’s said.
It said while DCP and IHS Holding have prudent financial policies, moderate to low leverage, strong business profiles with some geographic diversification outside of Nigeria and strong liquidity, their ratings are constrained by Nigeria’s B2 foreign currency ceiling.
Nigeria’s B2 foreign-currency ceiling limits the ability of a domestic corporation that has foreign currency obligations to be rated higher, which constrains a company’s rating.
The affirmation of Dangote Cement Plc.’s B2 CFR and stabilisation of the outlook reflect the meaningful linkage and limited ability to withstand stress at the Nigerian sovereign or macroeconomic level.
Moody’s note indicates that the group has a very strong credit profile, however, as Africa’s largest cement producer, it has material production concentration to Nigeria which generates around 71% of revenues.
The cement industry is energy intensive and the mining and manufacturing process for cement production consumes large amounts of coal, electricity and water, it noted.
While DCP’s operations are exposed to high environmental risks, its production meets domestic emission standards and the company has implemented measures to increase energy efficiency and transition to cleaner natural gas and alternative fuels for its power needs, Moody’s said.
In terms of corporate governance, the company is 85.1% owned by Dangote Industries Limited, which is owned by its founder and chairman, Aliko Dangote.
“This does present key man risk in Moody’s view given that Mr. Dangote continues to play a pivotal part in the fortunes of the company”. Despite DCP’s conservative leverage, the company pays material dividends to its shareholders which Moody’s analysts consider as a risk in light of its reliance on short term debt.
Explaining IHS holding stable outlook review, Moody’s said the affirmation of the B2 CFR reflects the affirmation of the sovereign rating at the same level.
The CFR on IHS Holding Limited, the leading independent mobile tower operator in Africa, is constrained by the concentration of earnings before interest tax depreciation and amortisation (EBITDA) generation in Nigeria, according to the rating note.
For the twelve months ending September 2021, Nigeria accounted for over 70% of group EBITDA, even when factoring in the announced acquisition of a portfolio of towers in South Africa, which is expected to complete in early 2022.
Moody’s said a key risk for IHS Holding in Nigeria is the limited US dollar availability, which can limit its ability to convert and repatriate earnings outside of the country to service its US dollar debt obligations.
The rating action also acknowledges IHS Holding’s continued strong performance in Nigeria as well as its good liquidity, including sizable cash balances held outside of Nigeria of $224 million (equivalent) as of 30 September 2021, full availability under a $270 million liquidity facility and a $500 million bridge facility for certain acquisitions.
The cash balance outside of Nigeria increased after September through proceeds from IHS Holding’s IPO and new bond issuance, according to the rating note.
For SEPLAT Energy, the rating note reads that the affirmation of the B2 CFR rating reflects the affirmation of the sovereign rating at the same level.
It noted that as an indigenous exploration and production company, Seplat generates all its revenue in Nigeria.
The company’s ratings consider the close ties to the Nigerian economy and government, such as the requirement that proceeds from the sales of oil and gas have to pass through the Nigerian banking system for 24 hours before they are allowed to be moved offshore and reliance upon Nigerian government-owned entities, the Nigerian Petroleum Development Company and the Nigerian Gas Marketing Company, for timely payment when it comes to cash calls for meeting both operating and capital expenditures.
Moody’s said Seplat has very high negative exposure to environmental risks mainly driven by very high carbon transition and weather related risks.
According to the rating note, Seplat upstream companies will face increasing pressure over time, particularly oil producers such as Seplat, as decarbonisation efforts and the transition towards cleaner energy continues. It said Seplat’s strategy to increase gas revenues partly mitigates the carbon transition risk.
However, it also noted that the energy company has very high negative exposure to social risks mainly because its operations in the Niger delta have been exposed to militant activity in the past that led to production disruption and crude theft from its main oil fields, oil mining lease (OML) 4, 38 and 41.
The note, however, recognised that there have been no militant disruptions since 2016 and the new Amukpe-Escravos export pipeline which will be operational by the end of 2021 will provide an alternative export route, improve uptime and reduce crude losses.
Seplat’s good liquidity position and moderate financial leverage are important characteristics for managing these environmental and social risks, Moody’s note added. #Dangote, IHS Holding, Seplat Rating Outlook Upgraded to Stable
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