Dangote Sugar Refinery Plc, the sugar company owned by Africa’s richest man Aliko Dangote, is looking to raise N100 billion ($69.56 million) through a Commercial Paper (CP) issuance to help it negotiate Nigeria’s challenging borrowing climate.
The corporation is issuing two tranches of its N150 billion ($104.35 million) CP program. Series 4 offers a 181-day tenor at a discount rate of 20.65 percent, while Series 5 offers a 265-day tenor at 21.17 percent. The offer began on May 16 and ends today, May 22, with settlement slated for May 23.
This issuance is estimated to bring the total money raised from the program to around N199.01 billion ($138.43 million). Since its admittance to the FMDQ on February 9, 2024, Dangote Sugar has successfully issued Series 1, 2, and 3, raising N99.01 billion ($68.87 million).
This includes N39.39 billion ($27.40 million) in Series 1 at a 17.08 percent discount rate and a tenor of 266 days, N6.15 billion ($4.28 million) in Series 2 at 19.81 percent for 184 days, and N53.47 billion ($37.19 million) in Series 3 at 21.30 percent for 254 days.
Nigeria’s latest benchmark interest rate increase to 24.75 percent has dramatically boosted borrowing expenses for businesses. Dangote Sugar’s CP products, with discount rates up to 21.3%, are an appealing alternative to typical bank loans. These interest rates are equivalent to the yields on newly issued government treasury bills, making them an appealing short-term investment alternative.
However, the significant discount rates indicate the difficulties encountered by Nigeria’s real sector. Lenders like Stanbic IBTC charge manufacturing enterprises interest rates as high as 50%, while others like FCMB offer rates ranging from 23% to 40%.
This year has been particularly difficult for Nigerian manufacturers due to increased energy costs, foreign exchange exposure losses, and high inflation. Borrowing costs exceeding 40% reduce corporate margins and hamper growth.
With banks providing few options, enterprises such as Dangote Sugar are looking to the fixed-income market for alternative funding. However, the necessity to compete for investors drives discount rates to 20%, providing even another challenge for enterprises.
Dangote Sugar Refinery is a component of the Dangote Group, a Nigerian industrial conglomerate that operates in cement, fertilizer, sugar refining, and petrochemicals. The major sugar company has a refining capacity of 1.44 million metric tons, making it Nigeria’s largest home and commercial sugar producer.
Aliko Dangote, worth $14.8 billion on the Bloomberg Billionaire Index, controls 72.7 percent of Dangote Sugar, valued at $244 million.
The recent devaluation of the naira has had an influence on Dangote Sugar’s financial performance. The corporation reported a $49.6 million loss in the first quarter, compared to a $9.2 million profit in the same period the previous year.
However, a 20% year-over-year revenue gain to $88.17 million indicates the company’s capacity to adapt to a difficult environment. Dangote Sugar aims to reduce Nigeria’s dependency on sugar imports within four years, despite ongoing challenges.
