Dangote Cement, Seplat take hit from Nigeria’s rating downgrade

Moody’s Investors Service has downgraded the ratings of Dangote Cement Plc and Seplat Energy Plc to Caa1 from B3 after it cut Nigeria’s credit ratings to the same level.

The global credit rating agency confirmed the ratings of IHS Holding Limited (IHS) at B3.

All three non-financial corporates are domiciled in or have substantial exposure to Nigeria and the rating action follows Moody’s downgrade of Nigeria’s long-term issuer rating to Caa1 from B3 and a change in outlook to stable from ratings under review, according to a statement.

Moody’s said it has also repositioned the national scale corporate family rating of Dangote Cement Plc to Baa3.ng from A3.ng to reflect the mapping of Global Scale Ratings to National Scale Ratings.

“The rating actions on Dangote and Seplat are a direct consequence of the rating downgrade of the government of Nigeria and the lowering of Nigeria’s foreign currency country ceiling, both to Caa1,” the agency said.

“As a result, the Nigerian corporates, which are domiciled in Nigeria and which were previously constrained at the B3 ceiling are now constrained at Caa1. IHS’ rating was confirmed at B3 because the company is not domiciled in Nigeria. All rating outlooks are changed to stable from ratings under review.

It said the change of the outlook on the ratings of these companies to stable from ratings under review was a direct consequence of the change in outlook on the ratings of the Nigerian sovereign to stable from ratings under review.

Moody’s said: “Dangote, IHS and Seplat continue to have relatively prudent financial policies, adequate liquidity, moderate to low leverage and strong business profiles, generally supported by market-leading positions, some geographic diversification outside of Nigeria or export revenues.

“Nigeria’s Caa1 foreign-currency ceiling limits the ability of a domestic corporate that has foreign currency obligations to be rated higher, which constrains a company’s rating. As a result, Dangote and Seplat’s ratings are constrained by the foreign currency country ceiling. IHS is domiciled outside of Nigeria, in the Cayman Islands, and is constrained at 1 notch above the long-term issuer rating of Nigeria.”

All three issuers’ ratings are constrained because they generate a material portion of their earnings and cash flows in Nigeria and are materially exposed to Nigeria’s political, legal, fiscal and regulatory environment and therefore have interlinkages with Nigeria’s sovereign rating, according to the agency.

Seplat is said to be less exposed to convertibility risk, given most of its revenue are paid in dollars.

“However, its export dollar oil revenue are required to be repatriated back into Nigeria within 90 days of receipt, after which Seplat can transfer these US dollars funds back into offshore bank accounts,” it added.

Dangote’s high proportion of dollar debt in the capital structure “exposes the company to currency convertibility risk,” Moody’s said.

It said: “While Dangote continues to grow its dollar revenue through exports and repatriations of dollar cash flow from its other African operations, it is still reliant on the Central Bank of Nigeria for dollars, which remains restricted.

“The company’s liquidity profile is adequate but is exposed to ongoing refinancing risks because of the large portion of short-term debt equal to N383 billion, representing 55% of total Moody’s adjusted debt as of 30 September 2022. Dangote benefits from strong cash flow generation with cash balances of N217 billion as of 30 September 2022.”