Investment a ‘game changer’ for Africa’s cement giants

NIGERIA’S two largest cement makers are turning to investors to help kick-start growth and take advantage of strengthening sub-saharan economies and infrastructure spending.

Lawmakers this month approved a 2018 budget of 9.1 trillion naira (R314 billion), the nation’s biggest spending plan yet, with almost a third of it going into roads, rail, ports and power. President Muhammadu Buhari still has to sign it, however.

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 national leader in February.

Dangote, controlled by Africa’s richest man, Aliko Dangote, said last

FINANCING TO HELP BOOST GROWTH IN STRENGTHENING SUB-SAHARAN ECONOMIES

month it was looking to raise $500m (R6.3bn) from a Eurobond sale and would 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 Switzerlandbased Lafargeholcim Ltd, 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 macro-economic fundamentals driven by the upturn we are seeing in commodity prices,” said Omotola Abimbola, equity analyst at Lagos-based Afrinvest West Africa.

The fund-raising will allow both companies to reduce debt and financing costs and free up cash.

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 south-eastern

Nigeria, that can produce 5 million metric tons of cement a year, and is investing in its South African operation as it seeks to increase capacity to 17.5 million tons, from 14 million, 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 60-70% over the next 18 months, from more than 100%, Mobolaji Balogun, its chairman, said in Lagos. That would 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.

However, raising funds won’t automatically lead to faster growth.

Lafargeholcim chief executive

Jan Jenisch has said turning around operations in Africa and the Middle East would be his toughest challenge, as he steers Europe’s biggest cement maker through an overhaul.

Lafarge Africa reported a loss last year, though sees a return to profit this year. In the companies’ favour are the expectations for economic growth, with Nigeria showing signs of recovery after contracting in 2016, with the economy forecast by the IMF to grow 2.1% 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. – Bloomberg