Danegote, Lafarge to raise capital


Nigeria’s two biggest cement producers are set to raise huge resources from both local and foreign investors in a bid to expand productions and take advantage of economic recovery and increased infrastructure spending in the continent.
A report by Bloomberg said the two major cement firms intended to also refinance outstanding debt with proceeds of the fund raise.
Nigeria’s parliament approved 9.1 trillion naira 2018 budget this month, Africa’s biggest economic biggest spending estimate ever with almost a third of it earmarked for roads, rail, ports and power.
In South Africa, where both Dangote Cement Plc and Lafarge Africa Plc 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 the national leader in February.
Dangote, controlled by Africa’s richest man, Aliko Dangote, said last month it’s looking to raise $500 million from a Eurobond sale and will also issue 300 billion 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 $1 billion. Meanwhile, Lafarge Africa, the Lagos-listed unit of Switzerland-based LafargeHolcim Ltd., is seeking to raise about 100 billion naira through equity or debt on top of a rights issue of about 130 billion 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 by phone.
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 16 African countries, is investing heavily in markets including Tanzania and the Democratic Republic of Congo and has earmarked $350 million for capital projects this year.
In Nigeria, the company is building export facilities to boost shipments to West African neighbors. 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 5 million metric tons of cement a year and is also investing in its South African operation as it seeks to increase capacity to 17.5 million tons from 14 million 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 60 percent and 70 percent over the next 18 months, from more than 100 percent, Mobolaji Balogun, its chairman, said in an interview in Lagos.
That will lower the cost of further borrowing for expansion.
In a further indication of growth appetite, both cement makers last year considered a bid for PPC Ltd., South Africa’s market leader, before eventually walking away.
‘Toughest Challenge’
However, raising funds won’t automatically lead to faster growth. LafargeHolcim Chief Executive Officer Jan Jenisch said earlier this month that turning around operations in Africa and the Middle East will be his toughest challenge as he steers Europe’s biggest cement maker through an overhaul. Lafarge Africa reported a loss in 2017, though sees a return to profit this year.
In the companies’ favor are the expectations for economic growth, with Nigeria showing signs of recovery after contracting in 2016 with the economy forecast by the International Monetary Fund (IMF) to grow 2.1 percent this year.
Demand for cement in South Africa is expected to rise, while Ethiopia has been ranked by the IMF as Africa’s fastest-growing economy.
The fund raising will enable Dangote to build on an already solid base and could be a “game changer” for Lafarge Africa, according to Olabisi Ayodeji, equity analyst at Exotix Partners LLP.