Lagos Nigeria, 24 December 2020 — Global Credit Ratings (“GCR”) has affirmed the long term and short term national scale Issuer ratings of AA+(NG) and A1+(NG) respectively accorded to Dangote Cement Plc, with the outlook accorded as Stable. Concurrently, GCR has affirmed the national scale long term rating of AA+(NG) accorded to Dangote Cement Plc’s N100bn Series 1 Senior Unsecured Bonds. The ratings are valid until November 2021.
GCR has accorded the above credit ratings to Dangote Cement Plc (“DCP” or “the Group”) based on the following key criteria:
The ratings reflect DCP’s status as Africa’s leading integrated cement manufacturer with a group-wide installed capacity of 45.6 million metric tonnes per annum across ten countries. Other key rating strengths include its extensive distribution network, significant scale economies and position as the largest corporate on The Nigerian Stock Exchange, with sound access to capital. These rating supports are, however, counterbalanced by the Group’s single market concentration, with Nigeria accounting for 89% of group EBITDA and 64% of capacity at 9M FY20
Notwithstanding rising competitive pressure and the resultant margin compression, DCP has sustained a sound earnings base. Looking ahead, GCR expects short-term pressure on EBITDA, as uncertainty arising from the COVID-19 crisis is expected to curtail construction activity in both the private and public sectors across key jurisdictions. That said, DCP’s performance is expected to rebound within 18-24 months, on the back of strong base domestic demand. In GCR’s view, the attainment of the Group’s medium-term targets will also depend on improved economic conditions and improving earnings contribution for the rest of Africa.
The Group continues to report strong cash flows which are expected to comfortably cover the rising debt service in the medium-term. In view of the ample leverage headroom, management has historically sustained a relatively high dividend pay-out ratio and increased interest-bearing debt (9M FY20: N450.8bn; FY19: N367.9bn) to fund the sizeable ongoing capex requirement. That said, GCR expects the Group to continue to demonstrate strong financial flexibility with debt to EBITDA (including operating leases) expected to range between 55% – 65% over the outlook period, and net interest cover projected between 10x and 15x.
In addition to the strong cash generation, it liquidity is underpinned by longstanding relationships with a range of domestic and international banks, with c.N150bn in unutilised committed bank facilities at November 2020, as well as strong implied access to funding from the capital markets.
As the Series 1 Fixed Rate Bonds are senior unsecured obligations of DCP (the Issuer), the Bonds bear the same rating as the Issuer, and any change to the rating assigned to the Issuer will directly affect the Bonds rating.
A ratings uplift could be achieved if DCP returns to a net ungeared position combined with strong free operating cash flows and improved profitability from the rest of the Group’s African operations. Conversely, a downward ratings pressure could arise from protracted earnings pressure from COVID-19 restrictions. Looking further ahead, an aggressive dividend policy that adversely impacts GCR’s view of liquidity or reduced financial flexibility due to materially higher than anticipated leverage could result in a downgrade.
NATIONAL SCALE RATINGS HISTORY
Initial rating (September 2016)
Rating outlook: Stable
Last rating (January 2020)
Rating outlook: Stable
+234 1 9049462
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Dangote Cement Plc Issuer rating report, 2016-20
Glossary of Terms/Ratios, February 2018
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES 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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings are valid until November 2021.
Dangote Cement Plc participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Dangote Cement Plc.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
The information received from Dangote Cement Plc and other reliable third parties to accord the credit ratings included:
– 2019 audited annual financial statement, and four years pro-forma annual financial statements;
– 9-month management accounts to 30 September 2020;
– Internal and/or external management reports;
– A completed rating questionnaire containing additional information on Dangote Cement Plc and its subsidiaries;
– Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties; and
– Information specific to the rated entity and/or industry was also received.