Nigerian cement giants turn to investors

INTERNATIONAL – Nigeria’s two largest cement makers are turning to investors to help kick-start growth and take advantage of strengthening sub-Saharan African economies and infrastructure spending, including in their home market.

Lawmakers in Nigeria this month approved a 2018 budget of 9.1trillion naira (R314.55billion), the nation’s biggest spending plan yet, with almost a third of it going into roads, rail, ports and power.

In South Africa, where both Dangote Cement and Lafarge Africa also have operations, fixed investment expanded in the last quarter of 2017 as sentiment started to change in the run-up to President Cyril Ramaphosa winning control of the ruling party and becoming national leader in February.

Dangote, controlled by Africa’s richest man, Aliko Dangote, said last month it is looking to raise $500million (R6.29bn) from a Eurobond sale and will also issue 300bn naira in local-currency bonds to refinance debt and boost expansion. That’s before a proposed London initial public offering in the next two years, which people familiar with the matter have said could raise about $1bn.

Meanwhile Lafarge Africa, the Lagos-listed unit of Switzerland-based LafargeHolcim, is seeking to raise about 100bn naira through equity or debt on top of a rights issue of about 130bn naira late last year.

“Across the region in the last one or two years, we are seeing improving macroeconomic fundamentals driven by the upturn we are seeing in commodity prices,” Omotola Abimbola, equity analyst at Lagos-based Afrinvest West Africa, said. The fund-raising will allow both companies to reduce debt and financing costs and free up cash, he added.

Dangote, Nigeria’s biggest listed company with operations in 10 African countries, is investing heavily in markets including Tanzania and the Democratic Republic of Congo and has earmarked $350m for capital projects this year.

In Nigeria, the company is building export facilities to boost shipments to West African neighbours.

Raising foreign currency in London will enable Dangote to meet capital expenditure needs in other African subsidiaries, according to Abimbola.

Lafarge Africa bought a plant in Calabar, in southeastern Nigeria, that can produce 5million tons of cement a year and is also investing in its South African operation as it seeks to increase capacity to 17.5million tons from 14million tons across the continent.

The company expects its leverage ratio, which measures the level of debt incurred by a business against its assets, to drop to between 60percent and 70percent over the next 18 months, from more than 100percent, Mobolaji Balogun, its chairperson, said in an interview in Lagos.

That will lower the cost of further borrowing for expansion.

– BLOOMBERG