Africa’s richest man Aliko Dangote’s conglomerate downgraded over liquidity concerns

Omokolade Ajayi -

Key Points:

  • Fitch Ratings downgrades Dangote Industries due to significant liquidity issues and challenges in raising funds. Ratings are now on negative watch.
  • Dangote’s oil refinery operates at 50% capacity, processing 325,000 to 375,000 barrels per day, amid delays and operational issues.
  • Nigerian government supports Dangote Oil Refinery with crude oil sales in naira, but Fitch remains concerned about financial stability and operational challenges.

Fitch Ratings has downgraded the credit ratings of Dangote Industries Limited, the diversified manufacturing conglomerate led by Africa’s wealthiest man Aliko Dangote. The downgrade is driven by significant liquidity concerns and challenges in raising funds, the agency announced.

The rating agency pointed to a “significant deterioration in the group’s liquidity position following lower-than-expected disposal proceeds,” leading to the downgrade and placing Dangote Industries’ ratings on a negative watch.

The conglomerate, recognized as Africa’s most diversified manufacturing and industrial giant, operates in various sectors, including the oil refinery sector, where it is set to become Africa’s largest refinery with a 650,000-barrel-per-day capacity in Nigeria.

Dangote Oil Refinery operates at half capacity

Fitch downgraded the conglomerate due to underperformance in operations and finances, worsened by the naira’s devaluation. The 2023 devaluation caused a N2.7 trillion ($1.74 billion) foreign exchange loss, straining the company’s finances with dollar debt and naira revenue.

The credit agency noted that Dangote’s oil refinery operated at about 50-percent capacity in the first half of 2024, processing 325,000 to 375,000 barrels per day. The delay in petrol production for the Nigerian market until August was due to challenges in securing crude oil.

Fitch also highlighted that Dangote’s fertilizer business has struggled with inadequate gas supply. In cement, profit margins are expected to decline further this year, as the company faces difficulty passing on higher costs to consumers amid weakening demand.

Fitch warns of financial risks despite Nigerian Government’s support

In response to the liquidity crisis, Nigerian President Bola Tinubu has directed the Nigerian National Petroleum Corporation (NNPC) Limited to sell crude oil to Dangote’s refinery in naira.

The government’s initiative, which involves providing 450,000 barrels for domestic use, is aimed at stabilizing fuel prices and the dollar-naira exchange rate. The refinery is initially expected to receive four cargoes from NNPC, costing approximately $13.5 billion annually.

Despite these efforts, Fitch remains cautious about the company’s outlook. “The significant liquidity constraints and operational challenges faced by Dangote Industries highlight the need for substantial improvement in the company’s financial management and strategic execution,” the agency stated.