News Update



Dangote to make history with Nigeria oil refinery, fertilizer IPO

Monday 9 July, 2018

The largest indigenous industrial conglomerate in Sub-Saharan Africa Dangote group has announced plans to have an Initial Public Offering (IPO) listing of both its fertilizer and refinery plant. The IPO is the first of its kind in Nigeria and if successful could set the stage for other companies to test the market.

The listing of the $2.5 billion fertilizer plant and $10 billion refinery capacity will be done differently as it will cut reliance on international markets for Africa’s largest oil producer, who imports more than 90 per cent of its fuel needs. The IPO is scheduled to commence after next year’s general election (early 2020).

Valuation of Refinery

BusinessDay estimates the potential market value of Dangote Refinery to be around $34.5 billion. This value was estimated using the average market valuation of some of the largest refiners in the world which are Exxon Mobil, British Petroleum, Shell, Petrochina, SINOPEC and Indian based Reliance based Industries Limited.

We estimated the market value of the refinery business as a standalone from the main entity by multiplying the percentage contribution of the refinery income to total revenue of the oil and gas companies with their total market capitalization. The average percentage contribution was 80.98 percent of total revenue.

We then estimated the average market value per barrel refined using the production capacity of the refinery and the estimated market capitalization of the refinery business. The average value per barrel refined was estimated to be $53,070 per barrel.

To obtain the market capitalization of Dangote Refinery we multiplied the production capacity of the refinery which is 650,000 barrels per day with the average market price per barrel refined which gave us an estimated market value of $34.5 billion.

Of the total firms used in the analysis, Dangote refinery had the smallest market value while the largest was Exxon Mobils refining operations which contributed 77.84 percent of revenues in 2017 with a daily refining capacity of up to 6.3 million barrels per day across multiple refineries around the world.

With 650,000 bpd Dangote refinery is one of the largest refineries in the world, behind the likes of Jamnagar refinery owned by Reliance Industries Limited which produces 1.2 million bpd.

Estimated Revenue

Nigeria a country of almost about 200 million people currently consumes roughly 35 million litres of petrol daily; Dangote’s Refinery facility is expected to produce about 50 million litres a day of petrol which implies the refinery will have about 15 million litters for export.

Dangote Refinery is expected to generate revenue of about N3.1 trillion from petrol in a full operating year which we arrived at by multiplying the expected production of 50 million litres a day of petrol by landing cost of petrol of N171 by 365 days.

Although, we also acknowledge that the landing cost of N171 might have increased due to higher oil prices and Dangote is expected to pump around 20,000 barrels a day from two shallow-water blocks, known as OML 71 and 72, located in the Niger River delta in south eastern Nigeria.

The refinery is also expected to produce about 15 million litres of diesel which will generate about N947 billion in a full operating year. We arrived at N947 billion by multiplying the 15 million litres by landing cost of diesel of N173 by 365 days. This means the Refinery could generate annual revenues of N4.04 trillion or $11 billion per annum.

Valuation of Fertilizer Plant

BusinessDay estimates the potential market value of Dangote Fertilizer plant to be estimated around $4.67 billion.
This value was estimated using the average market valuation US based Nutrien limited and Norway based Yara International who are among the largest fertilizer plants in the world and also generates 100 percent of their revenue from fertilizer.

We estimated the market value per output of the Fertilizer plant as a standalone from the business by multiplying the percentage contribution of the Fertilizer income to total revenue of the Fertilizer companies with their total market capitalization.

We then estimated the average value of per output in the fertilizer plants to be $1,556. To obtain the market capitalization of the Fertilizer plant, we multiplied the production capacity of the fertilizer plant which is 3 million metric tonnes per day with the average market price per fertilizer output which gave us an estimated market value of $4.67 billion.
“It will attract foreign investor’s attentions to Nigeria and also further place the country on the worlds stage as investors will be looking to tap into the huge opportunities in the oil and gas sector, which is an area government have failed over the years,” Ayodeji Ebo CEO at Afri-invest securities Limited said.
Currently being constructed on a 2, 200 hectares at the Lekki Free Trade zone in Lagos, with capacity to refine 650,000 barrels of crude per day, and a petrochemical plant of 750,000 metric tonnes of polypropylene per annum, it is 13 times bigger than the Indorama Eleme Petrochemicals Limited.

“The planned IPO will easy the issues of PMS, reduce importation of fuel and also reduce volatiles in terms of pricing,” Ebo told BusinessDay.

Projected to be the biggest refinery in Africa, it is also projected to have 1.5 times more capacity than the existing four oil refineries in the country, even if they are operating at 100 per cent while the 3 million metric tons a year capacity fertilizer plant located near the refinery will probably be producing its first batches of urea by the end of this year costing around $2.5 billion.

Ebo also noted that the planned IPO will be highly successful as Dangote is already a global brand and foreign investors will like to associates with the name.

Edwin Devakumar group executive director at Dangote Industries Ltd confirmed that the company has been in talks with oil traders including Royal Dutch Shell Plc, Vitol Group and Trafigura Group about supplying the refinery with crude and buying refined products.

BusinessDay contacted Shell a multinational oil firm working in Nigeria to confirm if they anticipating the Dangote refinery; “we can’t comment on speculated commercial talks with third parties,” a top official of Shell told BusinessDay by email.

The plant is designed to process light and medium grades of crude and produce fuels that meet European standards so that Dangote can sell them globally as Dangote is expected to start producing its own oil, partly to supply the refinery, within a few months. It aims to pump around 20,000 barrels a day from two shallow-water blocks, known as OML 71 and 72, located in the Niger River delta in south-eastern Nigeria.

“While Dangote took on a $3.3 billion syndicated loan, which Standard Chartered Plc arranged, most of the refinery and fertilizer projects are self-funded. Both units will probably be partly sold via initial public offerings eventually,” Devakumar said.

Dangote selected Engineers India Ltd. (ENGR) to do most of the detailed engineering work for the new plant. Construction contractors have yet to be appointed.

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