Aliko Dangote's sugar unit adds 67% more shares in $356 million raise

Shareholders in Aliko Dangote's sugar business now hold a substantially smaller slice of it than they did in April, after the Nigerian Exchange listed 8.1 billion new shares from a rights issue meant to rescue a balance sheet buried in dollar-denominated costs.

The NGX listed 8,097,918,827 ordinary shares of 50 kobo each on Sept. 7, according to a notice signed by Godstime Iwenekhai, head of issuer regulation at NGX Regulation. Issued and fully paid-up capital rose to 20,244,797,068 shares from 12,146,878,241, an increase of 67 percent.

The shares came from a rights issue at N60 apiece, two new shares for every three held by shareholders on the register at April 20. It raised roughly $356 million (N485.9 billion) and was oversubscribed at 102.6 percent before being scaled back to full allotment. Meristem Stockbrokers, Stanbic IBTC Stockbrokers and Vetiva Securities arranged it.

What the raise was for

Dangote Sugar earns almost entirely in naira but buys much of its raw sugar in dollars, mostly from Brazil. Successive devaluations turned that mismatch into a solvency question. As of March, the company carried around $452 million (N628 billion) of debt against $106 million (N148 billion) of shareholders' equity, a ratio near four times.

Proceeds were earmarked to cut debt, reduce financing costs and fund the Sugar for Nigeria backward integration programme, which targets 1.5 million tonnes of annual production from locally grown cane.

The evidence is not in yet

The half-year accounts to June 30 cannot show the effect. The offer closed on June 24 and the Securities and Exchange Commission approved allotment in August.

What those accounts do show is a business recovering on operations rather than on the raise. Profit after tax reached $29.9 million (N41.51 billion) against a $17.5 million (N24.27 billion) loss a year earlier, despite revenue falling 8.9 percent to $281.9 million (N391.85 billion). Cost of sales dropped 21.3 percent to $214.4 million (N298 billion) on a 26.7 percent fall in raw material costs, lifting gross margin to 23.95 percent from 12.01 percent. Other income rose to $8.7 million (N12.14 billion) from $176,000 (N244.95 million), almost entirely an $8.5 million (N11.83 billion) exchange gain.

Finance costs still consumed $34.2 million (N47.47 billion) in the half, down 23.6 percent, and the company continued to arrange additional bank financing during the period.

Spread across the enlarged share count, that half-year profit works out at roughly 40 percent less per share than it would have on the old count.

The third-quarter statement will be the first to show whether the $356 million (N485.9 billion) actually came off the debt.