Dangote Refinery is seeking an October listing on the Nigerian Exchange after raising $2.5 billion from private investors. The offer could reach $5 billion, but its final size, valuation and public float are still to be settled.
The Dangote Refinery has applied to Nigeria’s Securities and Exchange Commission (SEC) for an IPO that could conclude with an October listing on the Nigerian Exchange. The final amount has not been determined and remains subject to regulatory approval.
The company could publish a prospectus as early as September, according to Reuters.
The proposed transaction comes after a $2.5 billion private placement in July that valued the refinery at about $40 billion and attracted demand 3.7 times the amount offered. Earlier in the year, Dangote had explored a valuation of as much as $50 billion.
Those numbers leave prospective investors with several issues to examine when the prospectus arrives: the final valuation, how much equity will be sold, the refinery’s debt and cash flow, the cost of its planned expansion and whether its earnings can support the price being asked.
The company itself is already operating at a scale rarely seen in African industry. The Lagos refinery cost about $20 billion to build and has an original nameplate capacity of 650,000 barrels a day. Management plans to increase capacity to 1.4 million barrels a day within three years.
What investors will own
The shares being offered are in Dangote Petroleum Refinery & Petrochemicals FZE.
Dangote Cement, Dangote Sugar, NASCON Allied Industries Plc and other companies in the wider Dangote Group are separate businesses. The IPO gives investors exposure to only the refinery and petrochemicals company in Lagos.
The refinery remains majority-owned by Dangote interests. NNPC Limited said in February that it holds a 7.25 percent stake.
The July private placement introduced another group of institutional shareholders. Africa Finance Corporation (AFC) led a group of strategic investors in the deal.
The full ownership structure following that placement has not been disclosed publicly. The IPO prospectus should provide a clearer picture of who owns what before the public offer.
That information will be important because the percentage offered to public investors is still unsettled.
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How much will be sold?
Dangote was considering selling as much as 10 percent of the refinery when Bloomberg reported in May that the company was seeking a valuation of up to $50 billion.
Ten percent at that valuation would raise $5 billion.
The July private placement changed the reference point. That transaction valued the refinery at about $40 billion.
At that valuation, a $5 billion equity sale would represent 12.5 percent of the existing company if it were structured purely as a sale of existing shares.
The calculation changes if new shares are issued.
The amount of equity to be offered has not been fixed. The regulator will also have a say in the structure.
Investors should therefore treat the $5 billion figure as a target, not the final transaction size.
The $1bn underwriting
Another number requires some unpacking.
Dangote Refinery announced a $1 billion underwriting programme on August 18.
Only $400 million of that amount is committed specifically to the IPO.
The remaining $600 million is a funded tranche connected to the earlier private placement. Marob Strategies and Lilium Capital structured the programme through Pan-African Refinery Investment, a Lilium subsidiary.
The $400 million IPO commitment will take effect when the public offer launches, subject to market conditions and regulatory approval.
It gives the offer some institutional support before the shares reach retail investors, but it should not be reported as $1 billion already committed to the IPO.
Why Dangote needs capital
The refinery has moved from construction into production. Its next phase is another large expansion.
CEO David Bird said the company intends to increase refining capacity to 1.4 million barrels per day within three years, with part of the funding coming from the IPO and additional debt.
He said the expansion should cost substantially less than the roughly $20 billion spent building the original plant because existing infrastructure can be replicated.
Dangote has already been reorganising the refinery’s financing.
In March, Afreximbank underwrote $2.5 billion of a $4 billion five-year syndicated loan arranged with Access Bank. The financing was intended to consolidate existing obligations and improve the refinery’s capital structure.
The company is also pursuing a second refinery in Kenya, planned at 700,000 barrels per day. A Dangote executive told Reuters that the Kenyan project would draw funding from internal cash flow, bonds and an IPO.
The approved prospectus will need to state clearly how the Nigerian IPO proceeds will be allocated. Investors should not assume that every expansion project announced by Dangote will be financed from this offer.
Is $40bn too expensive?
This may become the central argument around the IPO.
A July private placement valued Dangote Refinery at roughly $40 billion. The earlier $50 billion ambition would put it higher still.
Both numbers look expensive beside listed refiners elsewhere.
Turkey’s Tupras has refining capacity comparable with Dangote across four refineries and had a market capitalisation of about $12 billion in early August. HF Sinclair, with around 678,000 barrels per day of capacity, was valued at about $16 billion.
That comparison is useful, but not complete.
Dangote is not operating in the same market.
Nigeria has a large domestic fuel market and spent decades depending heavily on imported refined products. The Lagos complex also combines refining with petrochemicals and has growing export operations.
The refinery became Europe’s largest supplier of jet fuel in June and July, according to Bird, as disruption from the Iran conflict forced buyers to look for alternative sources.
Those advantages can justify a premium.
How large a premium depends on the financial statements.
Investors need audited revenue, refining margins, operating cash flow, debt, capital expenditure and returns on invested capital before deciding whether $40 billion is sensible or excessive.
Production capacity alone cannot settle the valuation.
Crude supply remains important
A larger refinery also needs much more crude.
Dangote has had recurring difficulties securing enough Nigerian barrels and has imported crude from other producers.
In June, the refinery bought crude from the United Arab Emirates for the first time. Dangote was receiving about five to seven Nigerian cargoes a month but required 13 to 15 cargoes to meet its needs. It has also sourced Libyan crude.
The Nigerian government is considering reforms that could make direct crude purchases easier for domestic refiners and reduce the cost added by intermediaries.
For shareholders, crude supply affects more than plant utilisation. It affects margins, working capital, foreign-exchange exposure and the cost of running the refinery.
Moving from 650,000 barrels per day to 1.4 million will make the issue even more important.
The “people’s IPO”
Dangote wants the public offer to reach Nigerian retail investors, not only institutions.
“The mandate of the IPO was to be the people’s IPO.” — David Bird, CEO, Dangote Refinery
Bird said the company wants broad participation and will keep its primary focus on Nigeria for now.
A foreign listing is not expected for at least three years. Management wants a longer record of production and financial performance before approaching another major exchange.
The Johannesburg Stock Exchange has nevertheless held discussions with Dangote and says there is “strong intent” to pursue a South African listing after Nigeria.
Other African markets have also shown interest in giving their investors access to the Nigerian offer through structured products.
That could broaden the investor base without requiring an immediate dual listing.
Nigerians should not pay yet
The retail push has already created a regulatory problem once.
In June, the SEC ordered brokers and digital investment platforms to stop marketing purported Dangote Refinery IPO shares. At that point, no IPO application had been filed or approved.
The company has since submitted an application.
That still does not mean investors should send money to anyone offering allocations.
The approved prospectus should state the offer price, minimum subscription, opening and closing dates, issuing houses and authorised payment channels.
Until the SEC clears the offer, claims of guaranteed allocations should be treated with caution.
What about dividends?
Dividend policy could become one of the offer’s strongest selling points.
Investors may be given the option to receive dividends in naira or dollars, according to credible reports.
For Nigerian investors, access to dollar-linked earnings would make the stock unusual on the local exchange, particularly during periods of naira weakness.
But investors should wait for the prospectus.
A public statement about dollar dividends is not the same as a binding dividend policy. The offer documents will need to show how distributions will work and whether conditions apply.
Dangote’s wealth
The listing will also provide a public-market price for an asset that accounts for a substantial part of Aliko Dangote’s fortune.
Estimates currently put his wealth between roughly $31 billion and $35 billion.
Private assets are difficult to value. Wealth rankings rely on transaction prices, comparable companies, reported financial information and discounts applied to privately held shares.
A listed refinery changes that calculation.
Once the shares begin trading, Dangote’s stake will have an observable market price.
If the exchange values the refinery materially above the value already assigned to it by wealth trackers, his reported fortune could rise by several billion dollars. Under more aggressive assumptions, a valuation towards $50 billion could push his paper wealth significantly higher.
A gain of $20 billion or $30 billion is possible only under assumptions that give a much lower current value to his refinery interest and a high value after listing. It should not be treated as an expected outcome.
There is another complication. Dangote will own a smaller percentage of the business after new investors come in.
The IPO can make the remaining stake more valuable while simultaneously diluting his percentage ownership.
The final cap table and market price will decide how those two effects balance.
What it means for NGX
A refinery valued at $40 billion would be enormous by Nigerian market standards.
Nigeria’s equity market was worth about $116 billion in early August. The $5 billion fundraising target alone is equivalent to slightly more than 4 percent of that figure.
The full market capitalisation of the refinery would have a much larger effect.
A listing at around $40 billion could alter index weightings, fund allocations and foreign investor interest in Nigerian equities. Domestic pension funds and asset managers may also need to decide how much of their portfolios they are willing to commit to one company.
It could affect existing stocks too. Investors who need cash to subscribe may sell other holdings.
The transaction would also give NGX something it has rarely had at this scale: a new industrial listing capable of attracting investors well beyond Nigeria.
Wait for the prospectus
Dangote Refinery has several characteristics investors will find difficult to ignore.
It operates at scale, has a large home market, sells into international markets and intends to double production. Institutional investors have already put billions of dollars into the company.
None of that answers whether the IPO shares will be worth buying.
The prospectus needs to show what the refinery earns, how much debt it carries, how much cash it generates, what the expansion will cost and precisely what public shareholders will own.
It must also settle the numbers that have moved during months of discussion around the listing: $40 billion or $50 billion valuation, 10 percent or more of the company, and an offer of $5 billion or something smaller.
Until those figures are available, investors have an industrial story and an indication of strong institutional demand.
They do not yet have enough information to price the shares.
