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Dangote Cement Plc manages its capital structure to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt to equity balance.
The most capitalised and largest producer of the building material in Africa’s most populous nation endeavors to maintain an optimum mix of net debt to equity ratio which provides benefits without exposing itself to any undue long-term liquidity risk.
It manages its capital structure and makes adjustments to it in the light of changes in economic conditions.
“To maintain the capital or adjust the capital structure, the Group may adjust the dividend payment to shareholders, issue new and/or bonus shares, or raise debts in favourable market conditions,” said the company.
Of course, the management and board of directors of the company were nimble enough to take advantage of a low interest rate during the pandemic period to tap the debt market to raise capital to fund key viable projects. The aggressive expansion has been creating value for shareholders.
It is important to note that the cement maker has a strong balance sheet/cash flow and internal resources to meet its obligations and withstand macroeconomic shock.
The median interest coverage ratio Dangote Cement stood at 4.49 at the end of 2022, which is lower than 2021’s 8.86, according to data from MoneyCentral.
The figure is a measure of a company’s ability to repay its debts, with a ratio of at least 2 generally considered the minimum acceptable amount for a company with solid revenues. Analysts typically prefer a coverage ratio of 3 or higher.
Additionally, debt to equity ratio stood at 0.67, which means the cement maker has N0.67 of debt for every Naira of equity; therefore, it is not susceptible to financial risk and there are no threats to its going concerns.
The improved financial health of the company comes amid rising interest rates that is ballooning borrowing costs as the Central Bank of Nigeria (CBN), intensifies on its hiking cycle to tame red-hot inflation which is exacerbated by the Russia and Ukraine war.
The central bank has raised its monetary policy rate to 18% from 17.5% in its February 2023 meeting, marking the second interest rate hike in 2023.
The decision was made due to the rising inflation rate in the economy, with headline inflation reaching 21.91% in February, the highest level since September 2005.
The Nigeria 10 year Government Bond has a 14.451 percent yield, according to data from World Government Bonds (WGB).