Dangote plans to sell 12.7% stake in refinery over liquidity issues

Fitch Ratings, a credit rating agency, says Dangote Group plans to divest 12.75 percent stake in Dangote Petroleum Refinery over liquidity concerns.

In a statement on Monday, Fitch said Dangote Group plans to use the proceeds from the stake sold to service a sizable syndicated loan that matures on August 31, 2024.

In September 2021, NNPC acquired a 20 percent interest in Dangote refinery for $2.76 billion.

However, Aliko Dangote, Africa’s richest person, on July 14, said the national oil company now owns 7.2 percent stake in the refinery.

Speaking on the deal, Fitch said the 2021 transaction entailed that the NNPC acquired a “7.25% stake in DORC’s project entity for USD1.0 billion, with an option to purchase the remaining 12.75% stake by June 2024”.

Since the option has not been exercised, the rating company said the Dangote Group plans to sell a 12.75 percent stake in the Dangote refinery this year.

“The group intends to service its significant syndicated loan maturing in August 2024 from the equity divestment. However, timely divestment and meeting the imminent maturity is highly uncertain in our view,” Fitch said.

Fitch said as of 2023 Dangote Industry Limited’s (DIL) consolidated liquidity profile comprised of N1.4 trillion of readily available cash (unaudited) and N400 billion as of “1Q24, with no headroom under the revolver facility”.

“Additionally, we expect further deterioration in FCF due FX swings and capital requirements in 2024 and 2025. Liquidity is insufficient to address upcoming debt maturities,” the company said.

“The group plans to finance the substantial syndicated loan maturing in August 2024 through the divestment proceeds of 12.75% stake in DORC.”

On July 14, NNPC said Dangote refinery was informed several months prior of its decision to limit the national oil company’s equity participation at the paid-up amount.

Fitch also downgraded DIL’s long-term credit rating to ‘B+(nga)’ from ‘AA(nga)’ and lowered the senior unsecured debt rating issued by Dangote Industries Funding Plc to ‘B+(nga)’ from ‘AA(nga)’– thereby placing the ratings on negative.

“The downgrade reflects significant deterioration in the group’s liquidity position following lower than expected disposal proceeds, operational and financial underperformance compared to our prior expectations, also affected by local currency devaluation, and lack of contracted backup funding to repay its significant debt facilities maturing on 31 August 2024,” Fitch said.

However, GCR Ratings (GCR), an affiliate of Moody’s, graded DIL with the national scale long-term and short-term issuer ratings of AA+(NG) and A1+(NG) respectively.