GCR Places Dangote Cement Plc on Rating Watch Negative
GCR Ratings (GCR) has placed Dangote Cement Plc’s national scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG) respectively on Rating Watch Negative.
The African markets focused rating agency also placed the national scale long-term issue rating of AA+ (NG) accorded to each of Dangote Cement Plc’s related bonds on Rating Watch Negative.
It said the Rating Watch Negative on Dangote Cement Plc and the bonds follow similar rating action on its parent, Dangote Industries Limited, given the sub-group credit analytical approach with a cap to DIL’s ratings.
“This is because DCP is a core part of the group, being 86% owned by DIL and accounting for more than 80% of the group’s earnings before interest tax depreciation and amortisation (EBITDA) for the financial year which ended 31 December 2023”, GCR said.
The rating note stated that Dangote Cement Plc has material related party loan exposures to DIL, as it facilitated and on lent USD675 million to the latter from Afrexim Bank in 2024.
“Although there is the presence of minority shareholders, there has been a history of substantial dividend upstreaming to its parent amid material debt capital raise, which places significant liquidity strain on the company’, GCR noted.
The rating note revealed that total dividend payments amounted to N503 billion as of December 2024, up from N337 billion in 2023.
Although DCP continues to report strong earnings trajectory and robust cash flows, Dangote Industries Limited, on the other hand, has a weaker credit profile, GCR analysts said in the rating note.
“This is because of the rise in debt and deterioration of the gearing metrics due to new working capital loans taken to procure crude oil for the refinery during its phased commissioning in 2024, compounded by the impact of the Naira devaluation on USD loans”.
Group earnings were also compressed in the nine-month to 30 September 2024, as the refinery was loss making during the commissioning phase, masking the profitability of other operating subsidiaries.
It said Dangote Cement Plc N100 billion in Series 1 bonds, N46.4 billion in Series 1 (Tranche B & C) bonds, and N116 billion in Series 2 (Tranches A-C) bonds, are direct, unconditional, senior, unsubordinated, and unsecured obligations of DCP.
GCR said the debt papers rank pari passu with all other senior unsecured creditors of company and the bonds therefore bear the same national scale long-term rating and outlook accorded to DCP.
“Although we expect that DCP’s strong market position will continue to support robust earnings and cash flows, the Rating Watch Negative indicates the potential for a rating downgrade in the near term.”
This is expected to materialise if Dangote Industries Limited’ debt keeps rising without a concomitant increase in earnings and if interest coverage remains below 1.25x and net debt to EBITDA remains above 5.5x.
To resolve the rating watch, GCR said the group would need to demonstrate ability to profitably operate the refinery and generate sufficient earnings to repay maturing debt obligations. #GCR Places Dangote Cement Plc on Rating Watch Negative Transcorp Hotels Hits Record High Ahead of Dividend Payment
