Fitch, the world’s biggest global rating agency has alleged that Africa’s wealthiest man, Aliko Dangote is not capable of completing its highly anticipated Refinery situated in Lagos.
A new report claims that Africa’s richest man, Aliko Dangote, does not have the kind of money needed to complete his refinery by 2023.
The agency claims that his company, Dangote Industries has limited financial flexibility with to complete its refinery. The Allegation is based on the timely completion or lack thereof of the project, adding that only limited delays or cost overruns may be tolerated in the current rating.
In it’s rating, Fitch argues that Dangote Industries suffers from weak corporate governance. It says that the existence of a “complex group structure with a large number of related-party transactions” has “a negative effect on operational and financial transparency.”
“We also think it’s a risk that Aliko Dangote, as CEO and main shareholder, has a lot of power over operations,” it added.
The report published by Fitch, the world’s biggest global rating agency, alleges that the Nigerian billionaire requires an additional $1.1 billion (900 billion) to complete the refinery but has invested all his cash and even borrowed to finance the refinery project.
According to the report, the Dangote refinery project is still on track to be completed by 2023 and requires an additional USD1.1 billion capex in 2022 to be partly funded by the new bond.
The report adds that Dangote Industries Limited (DIL) is planning to establish a local bond programme amounting to USD750 million to partially finance the completion of its refinery and petrochemical plant. DIL’s subsidiaries – Dangote Oil Refining Company Limited (DORC) and Dangote Fertiliser Limited (DFL) – will be co-obligors under the proposed programme.
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“Funding for the completion of the refinery project is expected to be partly covered by proceeds of the new bond. If the transaction is not successful, or should completion costs overrun or market conditions in the cement or urea sector deteriorate materially, we do not believe that DIL’s existing creditors would have further lending capacity. We believe that further asset sales, either in cement or stakes in the projects, would be the more likely options to address funding of the refinery.”
Fitch also noted that Dangote Industries suffers from weak corporate governance, adding that it’s a risk for Dangote, who already has a lot of power over operations, to remain the largest shareholder and CEO of the project.
In the report, Fitch said, “DIL has a complex group structure with a large amount of related-party transactions, with a negative effect on operational and financial transparency. We also view the dominance of Aliko Dangote, as CEO and the main shareholder, in operations as an additional risk.”
Fitch concluded its report by saying that the refinery project is expected to sustain strong margins and yield solid cash generation, adding diversification to DIL’s profile and allowing rapid deleveraging.
“Once operational, we expect this project to contribute around USD1 billion to EBITDA annually when ramped up from 2024,” it added.
If the fund urgently needed by Dangote isn’t raised through the sale of bonds, he can sell some shares in his cement company (he owns over 86% of Dangote cement) or he can sell some refinery project stakes, which would be the likely option to plug the gap.
He has sold 20% of the refinery stake to NNPC at a cost of $2.5 billion, but might be forced to dilute more stakes in the refinery if all the options to raise the $1.1 billion needed to complete the refinery fail him.
But if all these measures to raise money fail to see the light of the day, the only available option left for Aliko is to increase the price of his cement from what it is now to something higher.
Fitch concluded its report by saying that the earliest Dangote refinery can deliver its project is 2024 and not the 2023 that Dangote promised Buhari.
The Dangote refinery project has gone too far and Dangote, is racing against time just to make sure that he delivers the project. Failure to deliver this project will be nothing but a catastrophe to the Nigerian billionaire.
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