With N129 billion in current liability set to mature over the next 12 months, Dangote Cement may have chosen to raise up to N150 billion via commercial papers to refinance its debts rather than fall back on profitability.
Dangote Cement earned a record N204 billion in 2017 and paid out an astonishing N178.9 billion in dividends, reserving very little funds to clear off maturing debt. In the first 3 months of the year, more than N16 billion worth of debt matured with another N113 coming due over the remaining 9 months of the year.
In the 2017 financial statement, the company directors informed investors that “The current working capital is sufficient for the operations and the Group generates sufficient cash flows to fund its operations. Borrowings are mainly to fund the expansion projects in various African countries”.
Yet barely two days after the annual shareholders meeting, the company decided to borrow N50 billion in the market this month to fund short term working capital requirements and for general corporate purposes. In 2017, the company had a negative working capital of around N110 billion which was about half the size of the negative working capital of N222.6 billion in 2016.
From the figures above, it is clear that the business generates enough profit to take care of shortfalls in working capital but it is choosing to take advantage of the tax benefits to financing a business with debt.
Brian Egan, chief financial officer in Dangote Cement announced earlier in March that the company plans to raise a ₦300 billion local-currency bond as well as $500 million via the issuance of a Eurobond. The combination of these debts should push company liabilities above N1 trillion. Although some of the fresh debts will be used to pay off some of the older debts.
Currently, there is no commercial paper on the books of Dangote Cement and the company may be looking to diversify its financing sources as more than half of the current debt in the company is owed either to their parent company or Dangote Oil and Gas.
Also as money market rates have been trending lower this year, this commercial paper move may just be a way to refinance old debt at cheaper rates.
