(Ecofin Agency) - Despite its strong financial fundamentals, Moody's estimated that Dangote Sugar Refinery's international debt presents a high-risk profile due to its exposure to a volatile Nigerian market and the current global economic conditions signaling potential imbalances.

The financial rating agency Moody's has announced a Caa1 rating for the debt of Dangote Sugar Refinery Plc (DSR). This rating might influence the risk premiums that investors ask for when the company tries to get funding in the global market. This is particularly important now as Nigeria, the company's main market and home country, is dealing with issues related to the availability of foreign currency.

With the Naira (the Nigerian currency) depreciating in June 2023 following the exchange rate unification by the Tinubu administration, Moody's anticipates that sugar import costs will further increase and exert pressure on gross margins, which are already 3.4 times lower than the company's debt.

Dangote Sugar Refinery (DSR) is no ordinary company. It is a dominant force in sub-Saharan Africa, with a significant refining capacity, and is supported by the powerful Dangote Industries conglomerate, founded by Africa's wealthiest man. At first glance, DSR seems to have it all: a growing market, government support through the Nigerian Sugar Master Plan (NSMP), and a clear ambition to dominate the African sugar sector.

However, Moody's points to a more nuanced reality. DSR's total exposure to Nigeria, while the source of its successes, is also the source of its greatest challenges. The country, which is not very diversified in terms of its exports, very often faces situations of macroeconomic volatility, political turbulence, and regulatory challenges.

Although it offers a growing domestic market, thanks to a dynamic demography and growing demand for consumer products such as sugar, Nigeria also faces instability. This includes currency depreciation, historically high inflation, and political uncertainties.

In addition to macroeconomic challenges, DSR is also confronted with the intrinsic volatility of the sugar market. Fluctuations in world sugar prices can turn a profitable year into a loss-making one in the blink of an eye. Signals from India are raising fears of new imbalances in the international market.

However, the rating agency recognizes the company's strength and its historical ability to adapt and evolve. The next few years could well be decisive, not only for the company itself but for the Nigerian sugar industry as a whole.