Dangote Oil Refinery, which is reputed to be Africa’s largest oil refinery, could quickly run right into a deep monetary disaster because of a $7 billion debt burden – a scenario which signifies a attainable takeover of the venture by the Assets Management Corporation of Nigeria (AMCON).
Dangote Refinery is an oil refinery owned by the Dangote Group that’s below development in Lekki, Nigeria.
Dangote Group is a Nigerian multinational industrial conglomerate, based by Aliko Dangote, Africa’s richest man.
The Group’s pursuits span a spread of sectors in Nigeria and throughout Africa.
According to an evaluation by the Money Management Series, Dangote Oil Refinery, a 650,000-barrel per day (BPD) built-in refinery venture below development within the Lekki Free Zone, Lagos, Nigeria, was anticipated to start manufacturing in 2016 with $3.3 billion financing secured in 2013.
With the refinery now projected to start operations in 2025, Dangote Group’s indebtedness to monetary establishments is estimated to hit $8.4 billion by 2025.
Presently, this debt burden has risen to $7 billion with debt servicing of just about $700 million every year.
The completion date of the refinery has been moved eight occasions.
Whilst some would possibly say this isn’t within the character for Dangote Industries and their quite a few tasks throughout totally different sectors, the issue is deeply rooted.
A contractor on the delayed refinery venture, talking below the situation of anonymity, mentioned that poor planning, underpayment of contractors, and a scarcity of correct venture administration with over 40 contractors on website have led to a lot of the delays. He additionally added that of the 40, none is prepared to fee as there is no such thing as a clear delegation of obligation and over-decentralisation resulting in absolute chaos.
With these incessant delays, some financing banks are already calling of their loans amid fears of liquidity disaster, whereas others are elated by the assure of big pursuits to be recouped as quickly because the refinery comes on stream.
Dangote has been capable of restructure the services from varied native and worldwide banks twice to this point, however most banks have completely refused to restructure for the third time with principal reimbursement additionally falling due in addition to the annual curiosity funds.
The Nigerian National Petroleum Corporation (NNPC) has made obtainable $3.8 billion as a part of federal authorities’s 20% fairness within the venture, offering $1 billion money, whereas the remaining $2.8 billion might be in crude provide.
However, analysts have identified that NNPC’s 20% fairness at $3.8 billion makes the Dangote refinery overvalued at $19 billion.
When Aliko Dangote unveiled early plans for the refinery in September 2013 and introduced that he had secured about $3.3 billion in financing for the venture, the refinery was estimated to price about $9 billion, of which $3 billion could be invested by the Dangote Group and the rest by way of business loans, and start manufacturing in 2016.
However, after a change in location to Lekki, development of the refinery didn’t start till 2016 with excavation and infrastructure preparation, and the deliberate completion was pushed again to late 2018.
In July 2017, main structural development started, and Dangote estimated that the refinery could be mechanically full in late 2019 and commissioned in early 2020. Experts, nonetheless, posit that the development would probably take a minimum of twice so long as Dangote publicly said, with refining functionality not prone to be achieved till 2025.
Meanwhile, final week the Minister of State for Petroleum Resources, Timipre Sylva, reiterated that Federal Executive Council (FEC) authorized the acquisition of 20 per cent minority stakes by the NNPC within the Dangote Petroleum and Petro-Chemical Refinery.
Sylva, whereas briefing State House correspondents after the digital FEC assembly presided by Vice President Yemi Osinbajo final Wednesday on the Presidential Villa, mentioned the acquisition was within the sum of $2.76 billion.
“The Executive Council also approved the acquisition of 20 percent minority stakes by the NNPC in the Dangote Petroleum and Petro-Chemical Refineries in the sum of $2.76 billion,” he mentioned.
This growth has been described by trade observers as unusual as a result of $2.76 billion falls wanting 20 % of the Dangote venture valued by the sponsor at $16 billion. Using the $16 billion worth, 20 % ought to be $3.2 billion and analysts have expressed dissatisfaction on the disparity within the venture’s worth and NNPC’s funding.
Speaking with MMS Plus on the complexities with funding Dangote refinery, the Managing Director of Cowry Assets Management, Mr. Johnson Chukwu, argued that the banks wouldn’t have any problem from the financing as a result of Dangote must pay the pursuits.
“I don’t see the banks being unable to meet their liquidity because of the monies tied down in the Dangote refinery. Ultimately, if the investment is economically viable, when it starts operation it should be able to meet up the arrears. I believe the banks that went into this project understood some of these constraints and didn’t break their balance-sheets in the move to finance Dangote refinery. I don’t envisage any bank having a liquidity challenge as a result of investing in Dangote refinery. If there is any challenge it would come from Dangote, but it should be resolved when the project takes off,” he mentioned.
Commenting on the likelihood that NNPC over-valued or under-valued the venture in its 20% fairness, Chukwu opined that NNPC could also be taking a look at an enterprise valuation whereas the opposite worth may very well be the online worth.
“The enterprise value could be higher than the amount Dangote has invested in the project. However, I wasn’t involved in determining that, so anything I say will be purely speculative,” he mentioned.
Despite the huge assist of the Nigerian authorities on the refinery venture, issues have gotten so dangerous for the billionaire that even earnings from his different companies is probably not sufficient to cowl the rates of interest, not to mention the principal.
The $8.4 billion debt represents 75% of Dangote’s web price at $11.1 billion and Africa’s richest man has to hunt progressive methods to prop up his enterprise now because the refinery venture continues to be constantly delayed.