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.

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.

It can be recalled that Dangote has promised to commission the $19 billion refinery project before President Muhammadu Buhari’s tenure ends next year.

Furthermore, Fitch claims that the government sees the project as 'the messiah' that will solve Nigeria’s perennial fuel scarcity problem as it will end the country’s dependence on imported foreign fuel.

But recent findings by the agency shows that the timeline may not be achievable. Apart from the country's failing economy, Dangote requires an additional $1.1 billion (900 billion) naira to complete the refinery.

Unfortunately, Dangote does not have that amount of money as he has reportedly invested all his cash and even borrowed from lenders to finance the refinery project. Again, the lenders that borrowed Dangote’s loan for the financing of the project cannot give him the 900 billion naira that Dangote needs to complete the project as they are already over exposed to the project.

So the only way Dangote can raise money is through the sale of bonds by his cement company, Dangote Cement.

Fitch wrote: "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."

If the money 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.

aminulive:
POLITICSNIGERIA.COM


https://politicsnigeria.com/just-in-dangote-unable-to-complete-refinery-by-2023-over-cash-constraints/

Moderate Refinery Execution Risk: DIL's refinery project is still on track to be completed by 2023, and requires additional USD1.1 billion capex in 2022 to be partly funded by the new bond. Considering the importance of the refinery's cash flow contribution to the company's deleveraging capacity, the timely completion of the project is a key driver of our rating, and only limited delays or cost overruns may be tolerated in the current rating.

Limited Financial Flexibility: 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.

Transformational Projects: 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.