Table of Contents
Key Points:
- The Dangote Group is considering selling a 12.5-percent stake in its newly commissioned refinery to address liquidity challenges and meet debt obligations.
- Fitch Ratings warns of potential financial restructuring or default if the Dangote Group fails to service a significant syndicated loan maturing in August 2024.
The Dangote Oil Refinery operated at 50-percent capacity in the first half of the year, with debt-servicing requirements adding pressure to the group’s financial stability.
Aliko Dangote, Africa’s richest man and founder of the Dangote Group, secured $105 million in a recent Central Bank of Nigeria (CBN) foreign exchange auction. This financial boost comes as the conglomerate faces serious liquidity challenges, especially in its newly launched refinery.
The Dangote Group, Africa’s largest conglomerate, plans to sell a 12.5-percent stake in its refinery. This move aims to address its liquidity concerns. In 2021, the Nigerian National Petroleum Corporation (NNPC) bought a 7.25-percent stake in the refinery for $1 billion. NNPC has the option to buy an additional 12.75 percent by June 2024. However, Fitch Ratings noted that this option remains unexercised, leading the group to consider selling the stake to meet financial obligations.
Fitch warns of potential default as Dangote Oil Refinery faces debt-servicing challenges
Fitch Ratings highlighted the group’s urgent need to service a significant syndicated loan maturing in August 2024. The group plans to use funds from the equity sale to meet this obligation. However, Fitch expressed concerns about the timely completion of this sale. Delays could force the group into financial restructuring or even default, which might lead to a downgrade in Dangote Group’s credit rating.
The refinery, which began operations earlier this year, operated at about 50-percent capacity. It produced 325,000 to 375,000 barrels per day (bpd) in the first half of the year. This output is lower than expected as the facility is still ramping up production. Additionally, Dangote’s fertilizer business has struggled with inadequate gas supply, which further strains the company’s finances.
Fitch Ratings expects gradual improvement in the refinery’s earnings as it begins gasoline production in Q3 2024. Despite this, the group’s debt obligations remain a concern. At the end of 2023, Dangote Group had senior secured debt at the subsidiary level totaling $2.7 billion. This represents 49 percent of the group’s total debt. The debt structure also includes shareholder loans from Greenview plc, the group’s parent company, totaling $2.3 billion, or 43 percent of total debt.
Aliko Dangote recently announced that the group has paid off $2.4 billion of the $5.5-billion loan for the refinery, leaving $2.7 billion outstanding. The project faced delays due to land acquisition issues and extended timelines for sand-filling, which delayed the project for nearly five years.
As the Dangote Group continues to go through these financial pressures, the recent $105 million secured from the CBN FX auction provides some relief. However, the company must address its liquidity challenges quickly to avoid further financial instability.
