Dangote makes N30bn currency gain in suspended cement deal

Dangote makes N30bn currency gain in suspended cement deal
Published: 30 December 2008

Nigerian news sources note that it may not all be bad news for Nigerian conglomerate, Dangote Group, following a December 12 announcement that it was suspending parts of its multi-billion dollars investments in new cement plants in Nigeria and Senegal. Details now obtained by BusinessDay show the group is in line for a possible rich picking of some N30 billion in foreign exchange gains on account of the recent fall in the value of the Nigerian Naira against the dollar, on which the deal with the Chinese manufacturer, Sinoma, was done.

Both Dangote and Sinoma had in the December 12 announcement said they reached an agreement to suspend a cement project worth $1.45 billion and cut the size of another by about two-thirds. The total cost of the second project was $1.85 billion.

BusinessDay has now learnt that when the S1.85 billion deal was signed, the entire money was secured as a consortium of Nigerian banks, including UBA, First Bank, GT Bank, FCMB, Zenith, StanbicIBTC and BankPHB, came together to provide funding.

As a result, a confirmed letter of credit (LC) was opened with the total value of the project being paid to Sinoma of Shangai, China. BusinessDay also learnt that while the local banks provided the funds in naira, dollars that were transferred to Sinoma were bought at a rate of N118, which was the exchange rate at the time. 

But with the reworking of the deal, the value has now been cut to about $690 million. Sinoma is now expected to return the difference between $1.85 billion and $690 million (put at $1.16 billion) to Dangote.  Besides this arrangement, BusinessDay also found out that since the deal was struck and money paid to Sinoma, Dangote had been involved in negotiations with Sinoma over the deal’s entire payment structure, a move which now only requires it to pay 50 percent of the value of the reworked amount of ($690 million). This would mean paying just $345 million. 

In other words, Sinoma will now be returning about $1.51 billion under the new arrangement. The facility arranged to last for seven years with the banks is actually running as 90-day commercial papers (CPs) with repricing done every 90 days. The next repricing of the facility comes up in February when it is believed Dangote will go ahead with its plan to break the payment structure. “Dangote has already informed the banks of its intentions to payback a portion of the facility at the next repricing,” a source said.

However, since the deal was done, the Nigerian currency, the naira, has received serious beating in the foreign exchange market where it currently exchanges at about N138 to the dollar. For Dangote, this would represent a N20 gain on every dollar it is getting back from Sinoma, which will amount to N30.1 billion, one banker explained to BusinessDay. 

BusinessDay has also learnt that, unlike the second project, which was oversubscribed when the consortium of Nigerian banks came together, finance for the $1.45 billion project had not been secured before the suspension.

One finance industry source close to the deal noted that the project had cement lines meant for outside Nigeria. “Dangote had earlier called on some banks to finance the project on the strength of the success recorded on the $1.85 billion project, but because the climate has changed, the banks were not keen,” the source said, partly because the entire cement lines to be built were to be located outside the country.

Further details obtained by Business Day showed that the plant scheduled to be built in Senegal will now be relocated to Enugu in Nigeria. In the reworked deal, two cement lines each in Obajana and Shagamu are to be suspended, while the lines at Ibesin will go ahead.