Fitch Ratings has assigned
Fitch has also affirmed DIL's National Long-Term Rating of 'AA(nga)' with Stable Outlook.
The notes are issued under DIL's existing national bond programme of
The bonds' final terms are in line with Fitch's base-case assumptions. The proceeds are being used to part-finance the completion of
DIL is a diversified conglomerate in
Key Rating Drivers
National Scale Rating: DIL is rated on Fitch's Nigerian National Rating scale. Its business model, profitability and leverage metrics are commensurate with an 'AA(nga)' rating category. DIL generates a majority of its revenue from the domestic market and borrows in both Nigerian naira from local banks and in US dollars from international markets.
Prior-Ranking Debt: DIL has significant secured debt we view as prior-ranking to its newly issued unsecured bonds. The bonds include the standard covenant package for local bond issuance. Their documentation includes negative -ledge and cross-default provisions. Fitch's expectations of recovery result in a Recovery Rating of 'RR4' and bond ratings that are at the same level as DIL's National Long-Term Rating.
Cement a Major EBITDA Contributor:
Strong Cement Growth: The cement business recorded significant recovery in sales volume due to increases in prices and demand across DCP's main markets. Revenues rose 34% yoy in 2021 on growth in
Lower Urea Output: DIL's urea plant was commissioned in 2021 following delays, with a 25% utilisation rate of line 1 in 2021 and 0% in line 2. Both lines were fully operational as of
Moderate Refinery Execution Risk: DIL's refinery project is on track to be completed by 2023, and requires an additional
Refinery to Benefit Operational Profile: The refinery project is expected to sustain strong margins and yield solid cash generation, adding diversification to DIL's profile and allowing rapid deleveraging. Once operational, we expect this project to contribute around
Limited Financial Flexibility: Should refinery completion costs overrun or market conditions in the cement or urea sector deteriorate materially, we do not believe that DIL's existing creditors would have further lending capacity. We believe that further asset sales, either in cement, or stakes in the projects, would be the more likely options to fund the refinery.
High Leverage: We estimate funds from operations (FFO) gross leverage to have been high for 2021 at above 7x, up from 4.7x in 2019, due to continuing capex for the refinery plant. We expect DIL to start deleveraging meaningfully from 2023.
Weak Corporate Governance: DIL has a complex group structure with a large amount of related-party transactions, with a negative effect on operational and financial transparency. The group structure is further complicated by the
Parent Subsidiary Linkage:
Derivation Summary
DIL is a diversified conglomerate with a leading market share in building materials in
Diversified peers in LATAM,
Key Assumptions
Cement business to average
Urea plant line 1 to gradually ramp up to an average 60% capacity utilisation in 2022-2023 and to around 80% by 2025, from 25% in 2021. Line 2 to start production in
Fitch urea price deck assumptions:
Urea plant's 66% EBITDA margin in 2022-2025, increasing consolidated EBITDA margin to 39% in 2022 from 37% in 2021
Oil refinery to start production in 2H23. Fitch conservatively assumes a six-month delay in production ramp-up versus management expectations, with an average gross refining margin of
Capex at
No dividend payments until 2024 when net consolidated leverage is below 1.5x. Dividend pay-out to equal 90% of net income in 2024
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action on
Start of commercial production at the refinery project
Sustained positive free cash flow (FCF) generation
Sufficient liquidity with sustained liquidity score above 1x
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Sustained deterioration in operating performance across DIL's businesses, leading to gross debt/ EBITDA consistently above 5x
Weak liquidity position
Delayed commissioning of the refinery project by more than a year and significant capex overrun
Sustained negative FCF generation after commissioning of the refinery
Liquidity and Debt Structure
Adequate Liquidity: We estimate DIL's liquidity score at an adequate 1.5x for 2021 with estimated total external group debt of
ESG CONSIDERATIONS
DIL has an ESG Relevance Score of '4' for group structure due to complex group structure, limited transparency, and significant related-party transactions. It also scores '4' for governance structure due to a lack of board independence and key person risk from the dominant shareholder
DIL has scores of '4' for waste, hazardous materials management, ecological impact and for human rights, community relations, access and affordability, due to exposure to water and waste management in
All the above-mentioned factors have a negative impact on DIL's credit profile and are relevant to the rating in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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