Accelerating economic growth is stoking hope for increased infrastructure spending, including in SA. Picture: SUNDAY TIMES
Accelerating economic growth is stoking hope for increased infrastructure spending, including in SA. Picture: SUNDAY TIMES

Lagos — Nigeria’s two largest cement makers are turning to investors to help kick-start growth and take advantage of strengthening sub-Saharan African economies and infrastructure spending, including in their home market.

Legislators in Nigeria approved a 2018 budget of 9.1-trillion naira ($25bn) this month, the nation’s biggest spending plan yet, with almost a third of it going into roads, rail, ports and power.

In SA, where both Dangote Cement and Lafarge Africa 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 ANC and becoming national leader in February.

Dangote, controlled by Africa’s richest man, Aliko Dangote, said last month that it was looking to raise $500m from a Eurobond sale and would issue 300-billion naira in local-currency bonds to refinance debt and boost expansion.

That is 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 Switzerland-based LafargeHolcim, is seeking to raise about 100-billion naira through equity or debt on top of a rights issue of about 130-billion naira late last year.

"Across the region in the last one or two years, we are seeing improving macroeconomic fundamentals driven by the upturn we are seeing in commodity prices," says Omotola Abimbola, an equity analyst at Lagos-based Afrinvest West Africa.

The fundraising will allow both companies to reduce debt and financing costs and free up cash, he says.

Dangote, Nigeria’s biggest listed company with operations in 16 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. Abimbola says raising foreign currency in London will enable Dangote to meet capital expenditure needs in other African subsidiaries.

Lafarge Africa bought a plant in Calabar, in southeastern Nigeria, that can produce 5-million tonnes of cement a year and is also investing in its South African operation as it seeks to increase capacity to 17.5-million tonnes from 14-million tonnes 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 between 60% and 70% over the next 18 months, from more than 100%, Mobolaji Balogun, its chairman, said in an interview in Lagos. That will 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, the South African market leader, before eventually walking away.

‘Toughest challenge’

However, raising funds will not automatically lead to faster growth.

LafargeHolcim CEO Jan Jenisch said earlier this month that 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 in 2017, but expects a return to profit this year.

In the companies’ favour are the expectations for economic growth. Nigeria is showing signs of recovery after contracting in 2016, with the economy forecast by the International Monetary Fund to grow 2.1% this year.

Demand for cement in SA is expected to rise, while Ethiopia has been ranked by the IMF as Africa’s fastest-growing economy.

Exotix Partners equity analyst Olabisi Ayodeji says the fundraising will enable Dangote to build on an already solid base and could be a "game changer" for Lafarge Africa.