Dangote Cement Receives Top AA+ Rating from GCR

In light of the successful completion of the initial tranche of its share buy-back program, Global Credit Ratings (GCR), a prominent rating agency, has reaffirmed Dangote Cement Plc’s long-term issuer rating at AA+(NG). Furthermore, GCR has upheld the AA+ (NG) national scale long-term Issue rating for Dangote Cement Plc’s existing Senior Unsecured Bond Issues, with a stable outlook.

This reaffirmation is underpinned by Dangote Cement’s continued dominance in the Nigerian market and its expanding footprint in other African markets, which collectively contribute to the company’s robust financial profile, as per the rating report.

**The AA+ Rating Explained**

GCR’s rationale behind the AA+ rating is multifaceted, with the agency acknowledging the influence of certain factors on the ratings of the cement company. Notably, it cites the somewhat weaker credit profile of Dangote Industries Limited, the parent company of Dangote Cement, as a key determinant.

Central to the ratings of Dangote Cement is its competitive positioning within the industry. This is attributed to the company’s substantial production capacity, which spans across ten countries in Africa. Dangote Cement Plc operates as a subsidiary of Dangote Industries, Nigeria’s largest cement producer, with an impressive installed capacity of 32.22 million metric tons annually. Moreover, the company’s annual production of approximately 52 million metric tons makes it the largest cement producer on the African continent.

While Dangote Cement has made significant inroads into other African markets, the majority of its earnings continue to originate from Nigeria. GCR observes, “We note that several markets where the DCP operates are inherently riskier and yield relatively low margins than Nigeria. Nevertheless, the company’s strategic focus on promoting self-sufficiency in cement production within West and Central Africa could yield better competitive advantages across Africa over the medium-to-long term.”

**Financial Landscape of Dangote Cement**

According to the rating report, Dangote Cement faced some mild earnings pressure during the review period. This was primarily due to lower volumes caused by gas supply disruptions in Nigeria, along with supply chain issues and plant downtimes in its Pan-African operations.

However, despite these challenges, the company’s revenues witnessed a significant increase of 17%, amounting to N1.62 trillion (approximately USD 2.1 billion) for the financial year ending on December 31, 2022. This substantial revenue growth can be chiefly attributed to price increases that the company implemented in response to inflationary pressures and currency devaluation across its operating markets.

While the strategy of price hikes undeniably bolstered revenue figures, it also led to a decrease in sales volumes. This trade-off underscores the delicate balance that Dangote Cement must navigate to maintain profitability and competitiveness in the face of challenging market conditions.

In conclusion, the reaffirmation of Dangote Cement Plc’s strong AA+ rating by GCR underscores the company’s substantial presence and dominance in the African cement industry. However, the continued dependence on the Nigerian market for the bulk of its earnings and the associated risks in other markets highlight the need for strategic diversification and competitive adaptation to maintain its strong position in the long run. Despite earnings pressure caused by various challenges, the company’s proactive approach, including price adjustments, has ensured that it remains financially resilient and well-positioned for future growth.