The Nigeria media space has been abashed with the story of the richest man in Africa, Mr Aliko Dangote being broke and needing a bailout to complete his refinery project.
The story reverberated in Nigeria because the President Muhammadu Buhari’s administration is relying on the yet-to-be-completed refinery to turn the country’s fortune around.
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Last April, Information minister, Lai Mohammed described the project as a game-changer to conserve foreign exchange by ending the importation of petroleum products, creating employment and generating foreign exchange through the export of finished products.
The American credit rating agency noted that Aliko Dangote needs about $1.1 billion (N900 billion) to complete his refinery in Lagos.
It further detailed that the refinery’s existing creditors will not be able to give the organisation the amount needed for the completion of the project “If the transaction is not successful or should completion cost overrun or market conditions in the cement or urea deteriorate materially.”
However, Daily Trust’s analysis of the current and future cash flows from all of the Dangote Industries’ Limited productive assets (sugar, cement, refining, salt, agriculture, fertilizer, etc) does not lay credence to the story that he is broke.
Speaking with our reporter, a financial expert and publisher of Money Central, Patrick Atunya said the talk about Dangote being broke smacks of financial illiteracy.
Dangote Cement shares are as good as currency
The expert argued that Dangote Cement Plc (DCP), the flagship company of DIL, is a significant contributor to DIL’s consolidated profile.
The company is supported by large-scale operations in Nigeria and Pan-Africa. In 2021, DCP’s earnings before interest, taxes, depreciation, and amortisation or EBITDA contribution to DIL stood above 90%.
In 2021, revenues from cement sales in all its operations (Nigeria and the rest of Africa) rose by 34% and amounted to N1.383 trillion. After paying taxes and making other expenses Dangote Cement reported a profit of N346.4 billion.
Fitch Ratings forecasts that Dangote’s cement business will average $1.1 billion per annum in EBITDA between 2022 and 2025, making it one of the most profitable cement firms in the world.
DIL owns 85.8% of Dangote Cement.
Atunya said: “Because of the expected free cash flows from the cement operations, Dangote Cement stock, listed on the Nigeria Exchange Limited, are valued at 14 times earnings, for a market capitalisation of N5.11 trillion.
“This means that from just one of his firms, Dangote Cement alone, Aliko Dangote is liquid to the tune of N4.38 trillion (representing DIL’s 85.8% ownership).”
A liquid asset is an asset that can easily be converted into cash in a short amount of time. Stocks, money market instruments and marketable securities are generally considered liquid assets.
“This alone debunks the notion of Dangote being broke as he can sell down his stake in the cement firm or borrow against its assets if he chooses, as a way to raise money,” he added.
In 2021, the directors recommended a dividend of N20 per share for shareholders. Daily Trust analysis indicates that DIL received N292 billion as dividends last year from Dangote Cement.
Equity sale in refinery
The Nigerian National Petroleum Corporation (NNPC) in 2021 took a 20% stake worth $2.76 billion in the Dangote Refinery Project valuing the refinery at $13.8 billion then.
Analysts believe that the valuation is much higher today with the refinery nearing completion and the current geopolitical landscape with the Russia – Ukraine war, which has sent commodities soaring.
Funding for the completion of the refinery project could then be gotten through further asset sales in the project.
DIL could today probably raise $2 billion with a 10% – 15% sale of stakes in the refinery, more than is needed to complete the project.
Fitch expects the project to contribute around $1 billion to EBITDA annually when ramped up from 2024.
Assets for Loan
One way through which companies finance expansions or acquisitions is through loans backed by their existing assets.
Dangote Industries Limited (DIL) is planning to establish a local bond programme amounting to $750 million to partially finance the completion of its refinery and petrochemical plant.
Dangote Oil Refining Company Limited (DORC) and Dangote Fertiliser Limited (DFL), DIL’s subsidiaries, will be co-obligors under the proposed programme.
The bond programme, together with DILs retained earnings from its other operations should be enough cash to complete the refinery in Atunya’s opinion.
Dangote’s Fertiliser plant was commissioned last year and there were 2 lines operational as of April 2022.
The fertiliser plant line 1 is expected to gradually ramp up to an average of 60% capacity utilisation in 2022-2023 and to around 80% by 2025, from 25% in 2021. Line 2 will ramp to around 80% capacity rate by 2025 from 50% in 2022, according to Fitch.
The fertiliser plant is expected to be highly profitable also with a 66% EBITDA margin in 2022-2025.
The urea prices have soared as the Russia – Ukraine war affected commodity prices, currently traded at USD630/ton as of May 17.
Dangote Fertiliser plant has also begun exports of its products, meaning it is earning foreign exchange for DIL, which can be channelled into the completion of the refinery project.
Fitch estimates DIL to have an adequate liquidity score at 1.5x for 2021 with estimated total external group debt of $3.8 billion.
It has no significant maturities until 2023 when Fitch expects the refinery to start generating cash flow.
“We expect positive free cash flow FCF from 2023 when both projects (refinery and fertiliser plants) are ramped up and Capex is moderate,” Fitch said.
Atunya said: “In essence, Aliko Dangote is far from broke and will continue to smile all the way to the bank as all his major projects; cement, refinery and fertiliser generate mountains of cash annually into the foreseeable future.”