060910, Phillip Isakpa, Bday
A plan well passed advanced stages by Dangote Group to list the shares of its cement subsidiary, Dangote Cement, on the Nigerian Stock Exchange (NSE) is set to cause a major shakeup of the capital market in the country that could affect its shape and character in ways not seen for several years.
Dangote Cement is one of Africa’s biggest and most ambitious cement projects designed by Aliko Dangote, the group’s president and chief executive officer, to make the continent self sufficient in cement, a commodity in high demand for various construction purposes, especially residential and commercial housing which are widely believed to be grossly deficient across much of Africa. It has operations in Nigeria, Benin, Ghana, Senegal, South Africa and Zambia. But the initial listing will cover cement assets in Nigerian only.
Tomorrow in Lagos, the leadership of the NSE will meet to consider the Dangote plan and take what could be the most far reaching decision the Balama Manu/Anthony Ikhazobor-led interim administration would be taking during its tenure. The meeting of the NSE Quotation Committee comes on the heels of initial approvals already obtained from the Securities and Exchange Commission (SEC) last week for the deal to go ahead. Significantly, the Quotation Committee would be looking at a plan to list a company with a valuation of N2.13 trillion and which has the potential to increase total market capitalisation of the NSE to about N8 trillion, with Dangote Cement contributing 25 percent of that amount. On Friday the NSE posted a market capitalisation of (N5.94trillion). The shares could be listed at N35 per unit. At N2.13 trillion, the valutation of Dangote cement is about the combined total market capitalisation of all listed banks.
Details of the plan seen by BusinessDay, show that essentially, the deal would involve a highly technical and complex infusion of Benue Cement Company plc, a company majorly owned by Dangote Group, but which has widely dispersed shareholders across the country, into Dangote Cement. Analysts say this would be a positively significant merger arrangement, especially coming at a time the market is still on tottering steps to recovery after two years of taking a beating in a financial market crash, which causes were both locally and internationally induced.
Arunma Oteh, the director general of SEC, told BusinessDay in London on the sidewalk of a Nigerian investment propotion meeting at the weekend that she was pleased that the listing will bring more diversity to the market. “One thing you can say about this transaction is that it has the potential to shift attention away from bank stocks which have for long dominated trading and exchange,” she said. Gregory Kronsten, a London based economist with long standing interest in Nigeria said he was waiting to see the details. “I think I have to wait for more information but it sounds huge and interesting and could shape activities in the market.”
Both SEC and NSE appear keener than ever before to deepen the market in terms of the quality, quantity and diversity of stocks available on the bourse. Oteh and Ikazoboh spoke separately about the efforts SEC and NSE have been making to get some potentially highly liquid stocks, including telecommunications, oil and gas and power, to be listed on the Exchange. It is still not clear what success they have recorded in this effort, but a leading deal maker told BusinessDay in London that Nigeria may have missed the golden opportunity to get telcos and oil companies to list when it did not make it a policy before they came into the country.
The plan would lead eventually to the delisting of Benue Cement from the Stock Exchange when the process is completed. Shareholders of BCC would be offered a deal that allows them to own about three per cent of the equity of the new entity, in what is essentially a share swap arrangement where they are likely to get one share in the expanded bigger Dangote Cement plc for three Benue Cement shares that they currently own. Benue Cement closed at (N65.00) per share last Friday.
“This will be a listing by introduction. There will be no share offering as it is essentially a merger arrangement that brings in Benue Cement into Dangote, then delisting of BCC will follow and the new entity’s shares will be listed by introduction,” said a source familiar with this type of arrangement. The revelation by BusinessDay today is likely to send the market into a frenzy and get both investors and market operatives looking at their order books about how to respond to this development. Emmanuel Ikazoboh, NSE interim administrator, told BusinessDay in a phone call from London that the Exchange was ready for the development and that they were going to look at every aspect of the deal when the council meets tomorrow.
“For the NSE it means that market capitalisation will rise drastically. The only aspect is that the combined entity will account for 25-30 percent of the entire market capitalisation and when it demutualizes it is going to be even more significant,” Ikazoboh told BusinessDay. It is unlikely that the NSE will reject the deal tomorrow, especially with approval already given by the SEC, say analysts attending a Nigerian-focused investmentmeeting in London at the weekend. Such confidence is understandable. It seems like a very long time ago that the market witnessed frenzied activities and is now in dire need of rejuvenation. A big ticket transaction of this nature is the stuff confidence buildings are made of and there could be no better time to unleash it on the NSE. The only major concern being entertained is the cost of the whole transaction to Dangote Group, especially the fees that the NSE is likely to insist that Dangote pay to the last kobo. It is already being calculated to run into at least one billion naira.
One analyst said the company seems prepared to take this cost having already paid the Corporate Affairs Commission (CAC) at least N175 million for share capital increase alone. At the NSE, Dangote is likely to be asked to pay for the cost of delisting Benue Cement plc, the fees for merging Benue Cement with Dangote Cement, and the fees for the listing of the new entity on the Exchange. Each stage of the fee chain runs into at least hundreds of millions of naira. “We do not see Dangote saying no to the fees that will be charged because of the future prospects that this deal offers,” said an active member of the Stock Exchange.
But when the actual figures of fees to be paid are out, they will raise further debate about one of the most vexed issues that some say may be discouraging companies from seeking listing on the Exchange. “People like Dangote are putting their money where their mouth is because they know this is their country and so would foot the bill for listing. For foreign-owned firms like the telecoms and oil and gas companies, a decision to list could be put on hold by merely looking at the fees to be paid,” agonised one London based analyst. NSE’s Ikazobor is positive about the potential of market boosting confidence that this transaction is likely to bring. “It is encouraging to see our indigenous investors promote such transactions in the market. For, unless we show confidence in our market by investing in it, it will be difficult to attract foreigners to do so,” he said.
Bismarck Rewane, a leading economist and chief executive of Financial Derivatives Company Limited, told BusinessDay: “It is not a bad idea at all; at this time it is a welcome development for the market. Beefing up the market capitalization is good as it will help deepen the market. The development will help grow investors’ confidence in the market.”
Dangote Cement has operations in Nigeria, Benin, Ghana, Senegal, South Africa and Zambia. It owns six cement import terminals in Lagos and in Port Harcourt in Nigeria and one in Ghana through which it imports and bags bulk cement. The import terminals in Nigeria have a combined capacity of 9 million metric tones per annum, while Ghana’s facility has a capacity of 2 million metric tones per annum. The company operates two cement manufacturing plants- the Obajana Cement Plant, the largest cement plant in sub-Saharan Africa with a current capacity of 5.2 million metric tones and an additional 5 million metric tones planned and The Benue Cement Company Plc with 3.0 million metric tones of production capacity per annum. A new project in Ibese, Nigeria due for completion this year will see a further 5 million metric tonnes produced per annum.
Aggressive growth plans target a strong pan-African presence as Dangote Cement evolves to become a truly multi-national corporation. Greenfield Projects in Zambia and Senegal will have a capacity of 1.5 metric tones each per annum.
Dangote Group has two other companies, Dangote Flour and Dangote Sugar, listed on the Stock Exchange. With the merger of Benue Cement with Dangote Cement and its listing on the market, the group could potentially be responsible for up to 40 percent of total market capitalisation at any one time and the managers of the Nigerian economy would have to look out for market sensitivity to Dangote related issues.