Moody’s Assigns First-time Caa1, Baa3.ng Ratings to Dangote Sugar Refinery

Moody’s Investors Service has assigned a first-time Caa1 corporate family rating, and Baa3.ng national scale rating corporate family rating to Dangote Sugar Refinery Plc, the largest Sub-Saharan African sugar producer and refiner based in Nigeria. The outlook is stable.

Dangote Sugar Refinery’s Caa1 corporate family rating and Baa3.ng national scale rating reflect the company’s operational exposure to Nigeria’s macroeconomic, political, legal, fiscal and regulatory environment with all its operations, cash flows and assets located in Nigeria, according to a statement.

“The rating is constrained by the Government of Nigeria’s foreign currency ceiling rating but reflects the company’s strong credit profile and positive sugar industry fundamentals. The rating also takes into consideration the strong, larger and more diversified parent and main shareholder, Dangote Industries Limited,” it said.

Nigeria is a net sugar importer country resulting in FX outflows through purchases of raw material which represents a burden to the Federal Government’s weakening finances. 

Moody’s anticipates the June 2023 large naira depreciation to have negative credit implications in the 12 months. “As a raw material importer for its Apapa refinery, DSR’s costs of sugar imports in naira will increase following the naira weakening.”

It said that as a result of higher import costs and a lag to pass through the increasing cost base, Moody’s anticipates margins pressures during the second half of 2023. 

“However, in historical periods of currency weakening or increasing import raw sugar prices the company has been able to pass through increasing raw material costs to its customers over time and Moody’s expects that adjusted operating profit margins will reverse towards 15%-20% in the next 12-18 months,” it added.