Moody's Investors Service ("Moody's") has placed the B1 corporate family rating (CFR), the Aa2.ng national scale corporate family rating and the B1-PD probability of default rating (PDR) of Dangote Cement Plc ("DCP") on review for downgrade. At the same time, Moody's has affirmed the (P)B2 local currency rating and Aa3.ng national scale rating assigned to the NGN300 billion domestic medium-term note program (DMTN) and the B2 local currency and Aa3.ng NSR to the senior unsecured notes issued by DCP.
The review for downgrade was prompted by the increase in dollar debt in DCP's capital structure which was not initially contemplated in the B1 rating. As of 30 June 2021, the amount of dollar debt has increased to around 193 billion naira equivalent (35% of total debt) from 71 billion naira equivalent in 2019. This exposes DCP to increased currency risks because the majority of its cashflows are generated in naira and other African currencies and the fact that all the dollar debt is short term with maturities of less than a year.
Moody's will therefore need to consider the higher proportion of dollar debt in the context of Moody's foreign currency ceiling of B2 for Nigeria, instead of Moody's local currency ceiling of Ba3. Under Moody's methodology approach, Nigeria's B2 foreign-currency ceiling limits the ability of a domestic corporate that has meaningful foreign currency obligations to be rated higher, which constrains a company's rating.
The affirmation of the B2 ratings assigned to the DMTN program and senior unsecured notes reflect Moody's position that the previous notching considerations is no longer appropriate because of the low secured debt in the capital structure, sustainably low group leverage and high unencumbered asset base in Nigeria that provide sufficient recovery protection for senior unsecured lenders.
Factors That Could Lead to an Upgrade Or Downgrade of the Ratings
Factors will be updated following the conclusion of the review. Moody's review will focus on DCP's long term capital structure target, liquidity profile and its ability to generate sizable dollar revenues. Moody's expects to conclude the review process within 3 months.
List of Affected Ratings
..Issuer: Dangote Cement Plc
On Review for Downgrade:
....Probability of Default Rating, Placed on Review for Downgrade, currently B1-PD
....LT Corporate Family Rating, Placed on Review for Downgrade, currently B1
....NSR LT Corporate Family Rating, Placed on Review for Downgrade, currently Aa2.ng
....Senior Unsecured Medium-Term Note Program, Affirmed (P)B2
....NSR Senior Unsecured Medium-Term Note Program, Affirmed Aa3.ng
....Senior Unsecured Regular Bond/Debenture, Affirmed B2
....NSR Senior Unsecured Regular Bond/Debenture, Affirmed Aa3.ng
....Outlook, Changed To Ratings Under Review From Negative