Dangote Cement listing to provide foundation for NSE recovery?

Reports coming out of Nigeria have confirmed that Nigeria’s stock exchange has approved a NGN 22.09tn (15.5bn shares at NGN 135 each, cUSD 14bn value) listing of Dangote Cement, the nation’s biggest producer of the building material, which will increase the bourse’s market capitalisation by 37% at current market levels.

Dangote's Obajana cement plant in Nigeria

Dangote's Obajana cement plant in Nigeria

The listing of Dangote Cement will involve a merger with already listed Benue Cement Co., in which Dangote Group is the majority shareholder with 75%. Benue shareholders will be offered one share in the enlarged group for every two Benue shares held.

The company has been on an aggressive expansion programme over the past few years, and is now fully integrated, with operations in Nigeria, Benin, Ghana, Senegal, South Africa and Zambia.

The company owns six cement import terminals in Lagos and in Port Harcourt in Nigeria, and one in Ghana through which it imports and bags bulk cement. The import terminals in Nigeria have a combined capacity of 9m metric tonnes per annum.

It also operates two cement manufacturing plants – the Obajana cement plant, reportedly the largest cement plant in sub-Saharan Africa with a current capacity of 5.2m metric tonnes and an additional 5m metric tonnes planned, and the aforementioned Benue Cement Company Plc, with 3m metric tonnes of production capacity per annum. A new project in Ibese, Nigeria due for completion this year will see a further 5m metric tonnes produced per annum. Greenfield projects in Zambia and Senegal will have a capacity of 1.5m metric tonnes each per annum.

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The ongoing investment in increasing cement capacity in Nigeria, not just by Dangote but by the other manufacturers such as Lafarge Wapco, is an acknowledgment of the huge infrastructure deficit in that country and is set to turn Nigeria from a net importer into an exporter of cement.

The Cement Manufacturers Association of Nigeria (CMAN) said production was set to rise to 20m metric tonnes by 2012, with total cement production in 2010 expected to be around 11m metric tonnes, below demand of around 15m metric tonnes. 2011 is set to be the first year that the country has a production surplus, as demand is expected to be 16m metric tonnes and production to be at 18m metric tonnes.

Dangote’s ambitions of course go beyond Nigeria, as can be seen by its spreading tentacles, as it aims to compete not just on a local level but with the global cement manufacturers, in catching the wave of Africa’s infrastructure demand.

The issue will undoubtedly be well supported, we believe, and may prove to be the catalyst the market has been waiting for.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.