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GCR accords an Indicative Rating to Dangote Cement Plc’s proposed N300bn Series 1 (Tranche A–C) Senior Unsecured Bond Issue

Lagos, Nigeria, 30 March 2021 – GCR Ratings (“GCR”) has assigned a national scale long term indicative rating of AAA(NG)(IR)) to Dangote Cement Plc’s proposed N300bn Series 1 (Tranche A–C) Senior Unsecured Bonds. The Outlook on the rating is Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Up to N300bn Series 1 (Tranche A –C) Long Term Issue National AAA(NG)(IR)* Stable Outlook

*IR stands for Indicative Rating.

Rating Rationale

The Issuer, Dangote Cement Plc (“DCP”) is Africa’s leading integrated cement manufacturer, with a combined installed capacity of 45.6 million tonnes per annum across ten countries. GCR recently upgraded the Issuer’s long term rating to AAA(NG), underpinned by its strong competitive position, very solid earnings, robust cash flows and moderate gearing metrics.

DCP is in the process of registering a N300bn Multi-Instrument Bond Programme (“the Programme”) with Securities and Exchange Commission. Up to N300bn is expected to be issued in Series 1 Bond Issue under the Programme, and split into three Tranches (Tranche A, B and C), with tenor of three years, five years and seven years respectively. The Bonds shall constitute direct, unconditional, senior, unsubordinated and unsecured obligations of the Issuer. The bond net proceeds will be utilised for Nigerian expansion projects, refinancing of short term debts and working capital funding. Notwithstanding the amount raised under the Programme, GCR expects the Group to continue to demonstrate strong financial flexibility.

Being senior unsecured debt, the proposed Series 1 (Tranche A-C) rank pari passu with all other senior unsecured creditors. As such, the Bonds will bear the same national scale long term rating as that accorded to the Issuer. Accordingly, any change in the Issuer’s long term rating would impact the Bond rating.

The indicative rating assumes that the conditions in the notes will not change and will receive regulatory approval.

Outlook Statement

The Stable Outlook reflects GCR’s view of DCP’s robust earnings and strong cash flows, which serves to moderate the impact of external shocks and limit recourse to additional debt.

Rating Triggers

Given that the indicative rating is intrinsically linked to the Issuer’s long-term rating, any change in the rating assigned to the Issuer will directly affect the Bond rating.

A national scale rating upgrade is not possible as DCP’s long-term and short-term ratings are the highest possible ratings on GCR’s national rating scale. However, downward ratings pressure could arise from protracted earnings pressure or greater competition emerging from major international cement manufacturers. The aggressive dividend policy could result in materially higher than anticipated leverage and adversely impact GCR’s view of liquidity.

Analytical Contacts

Primary analyst Femi Atere Credit Analyst
Lagos, Nigeria femi@GCRratings.com +234 1 9049462
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA matthewp@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Corporate Entities, May 2019
GCR’s Nigeria Country Risk Score report, February 2021
Dangote Cement Plc Issuer rating report (2016-20)
GCR’s Primary Manufacturing Sector Risk Score report, February 2021

Ratings History

Dangote Cement Plc

Rating class Review Rating scale Rating Outlook/Watch Date
Long term Issuer Initial National AA+(NG) Stable Outlook September 2016
Short Term Issuer Initial National A1+(NG)
Long term Issuer Last National AA+(NG) Stable Outlook December 2020
Short Term Issuer Last National A1+(NG)

RISK SCORE SUMMARY

Rating Components and Factors Risk scores
Operating environment 5.25
Country risk score 3.50
Sector risk score 1.75
Business profile 2.50
Competitive position 2.50
Management and governance 0.00
Financial profile 4.50
Earnings performance 2.00
Leverage and Capital Structure 2.50
Liquidity 0.00
Comparative profile
Group support 0.00
Peer analysis 0.00
Total Score 12.25

Glossary

Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Indicative Rating An indicative Rating is denoted by an ‘IR’ suffix to indicate that a credit rating has been accorded based on review of final draft documentation and expectations regarding final documentation.
Issuer Ratings See GCR Rating Scales, Symbols and Definitions.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Refinancing The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to Dangote Cement Plc. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Dangote Cement Plc participated in the rating process via tele-conferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Dangote Cement Plc and other reliable third parties to accord the credit rating included:

  • 2019 audited annual financial statement, and prior four years annual financial statements;
  • 9-month management accounts to 30 September 2020;
  • Internal and/or external management reports;
  • Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties;
  • Information specific to the rated entity and/or industry was also received;
  • The Shelf Prospectus
  • Draft Series 1 (Tranche A-C) Pricing Supplements
  • Draft Series 1 Tranche (A-C) Trust Deeds

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